JPMorgan analysts, led by Nikolaos Panigirtzoglou, believe that Strategy's recent decision to permit Bitcoin sales to finance preferred shareholder dividends has injected unnecessary "two-way" risk into the cryptocurrency market. This policy increases uncertainty and volatility, prompting JPMorgan to suggest that Strategy should maintain higher cash reserves, specifically covering 24-36 months of dividend obligations, rather than its current 17-month buffer. The bank argues that issuing common equity to further increase dollar reserves, even if at a discount to net asset value, would reassure investors about Strategy's ability to avoid selling Bitcoin in the near future.
Strategy, a significant corporate holder of Bitcoin with approximately $13.7 billion purchased this year and holding about 4% of Bitcoin's total supply, recently formalized this policy. Additionally, it authorized preferred stock repurchases and share buybacks as part of a broader capital structure strategy. The company also set a minimum cash reserve target equal to 12 months of preferred dividends and interest expense, currently holding $2.55 billion. In early June, Strategy disclosed a sale of 32 BTC between May 26 and May 31 to fund dividend payments, which compounded pressure on Bitcoin already affected by revised Federal Reserve interest-rate expectations.
JPMorgan highlights that Strategy's substantial market presence means its actions, whether buying or selling Bitcoin, can significantly influence market liquidity, price dynamics, and investor sentiment. The bank indicates that greater price volatility could ultimately harm Strategy itself by increasing the cost of raising equity and debt for future Bitcoin acquisitions. While current bearish sentiment could be a contrarian bullish signal, a stronger second half for crypto depends on Strategy expanding its cash reserves and the approval of pending crypto market structure legislation by U.S. lawmakers. JPMorgan also noted a sharp decline in demand for U.S. spot Bitcoin ETFs, with a record $4 billion in net outflows in June.
