Key facts
- Strategy's stock hit a four-month low, trading as low as $114 before closing at $120, down nearly 7%.
- Bitcoin dropped below $60,000, its lowest point in 2024, before recovering slightly.
- Strategy sold 32 Bitcoin for $2.5 million, its first sale since 2022, to support dividend payments on its preferred stock.
- The company's preferred stock, STRC, fell 3.6% to $93, significantly below its $100 par value.
- Analysts suggest Strategy can increase its dividend to boost demand for STRC.
- Strategy's Bitcoin holdings are valued at $50.4 billion, with a current paper loss of $13.7 billion.
Strategy's stock experienced a significant downturn, hitting a four-month low, as concerns mount over its valuation and the coverage of its dividend payments. The company's preferred stock, STRC, also slipped, trading well below its $100 par value. This decline occurred despite Bitcoin's price fluctuations, including a dip below $60,000.
In an effort to manage its finances and potentially bolster demand for its preferred stock, Strategy sold 32 Bitcoin for $2.5 million this week, its first such sale since 2022. This move contrasts with the company's previous 'buy-and-never-sell' mantra. The company's total Bitcoin holdings are valued at $50.4 billion, but are currently subject to a paper loss of $13.7 billion.
Analysts, such as Mark Palmer from Benchmark-StoneX, have suggested that the pullback in STRC is not a significant concern, noting that Strategy has the flexibility to increase its dividend to support demand. The preferred stock's monthly rate-reset mechanism is designed to bring its price back to par.
Further pressure on Strategy's stock comes from valuation concerns. The company holds a substantial amount of Bitcoin, but its market capitalization of $107 billion reflects a premium over its Bitcoin holdings, a multiple that has been declining. The increasing saturation of the Bitcoin treasury market, with over 100 companies adopting a similar model, may also be contributing to this valuation gap.
Additionally, Strategy has become a target for short-sellers, with Jim Chanos among those betting against its business model. Fears of dilution also persist as the company continues to issue more shares to acquire Bitcoin, leading to a substantial increase in its outstanding shares since 2022.