For years, Strategy has operated under a firm directive to never sell its Bitcoin holdings. Although that directive has evolved, the guiding principles surrounding it remain similarly stringent. CEO Phong Le has defined very specific, narrow conditions under which the company, previously known as MicroStrategy, would contemplate selling from its substantial reserve of 818,334 Bitcoin.
The updated policy casts Bitcoin sales as an absolute last resort. Two key criteria must be satisfied before any sale can take place. First, the stock of Strategy needs to be trading below its modified net asset value, or mNAV, which indicates that the market is undervaluing the company compared to its Bitcoin assets. Second, Strategy must have exhausted all other options for raising funds, including equity raises and debt issuances.
The concept of Bitcoin per share, or BPS, underpins their financial strategies. Each investment decision is assessed with the question of whether it will increase the amount of Bitcoin each share represents. If a minor sale of Bitcoin can protect or enhance this metric for current shareholders, then it could be considered.
There are strong indications that selling may not even be necessary for the company. Strategy has created a robust cash reserve to cover preferred dividend obligations for several years. These dividends are fixed payments that must be met regardless of Bitcoin price fluctuations. Recently, the company secured $1.44 billion in equity within a mere 8.5 days, demonstrating its ability to access traditional funding swiftly, thus avoiding the need to liquidate Bitcoin holdings.
As long as the stock price remains above the mNAV, the company can issue new shares at a premium, consequently enhancing the BPS for existing shareholders. While it might dilute the number of shares, it would augment the Bitcoin value attributable to each share.
The company’s transition from MicroStrategy to Strategy signifies its focus on functioning as a leveraged Bitcoin investment vehicle along with its software business. Michael Saylor, co-founder and executive chairman, was once the face of corporate Bitcoin accumulation. CEO Phong Le continues to uphold this vision but adds a layer of operational realism by shifting to a stance of selling only under severe financial distress.
Investors reacted positively following the announcement of these new policies, with no notable selling pressure observed, and Bitcoin prices experiencing a rise. The BPS framework offers investors a straightforward approach to evaluate management decisions. Instead of speculating whether subsequent funding strategies like equity raises make sense, shareholders can look directly at the impact on Bitcoin per share.
The well-established cash buffer allows Strategy to navigate turbulent market conditions without immediate pressure to divest Bitcoin holdings. In scenarios where the stock trades below mNAV while facing a prolonged bear market and constrained capital markets, the framework necessitates that Bitcoin sales would be considered to maintain solvency.