Strategy Won't Have to Sell Bitcoin Even If Stock Prices Fall, Says Bitwise CIO

Bitwise Chief Investment Officer Matt Hougan reassures that Strategy (MSTR) will not be forced to liquidate its Bitcoin assets even if its stock value declines. He emphasizes the company’s strong position, due to its lack of imminent debt obligations and healthy cash reserves.

Key Takeaways

Bitwise's CIO Matt Hougan insists that Strategy is not in a position where it must sell its Bitcoin, despite concerns that it might be forced to do so.
Strategy has no debt due until 2027 and has sufficient cash to handle current interest payments, which mitigates immediate financial stress.
Recent remarks from Strategy's CEO indicated the potential for Bitcoin sell-off if market value drops, but Hougan believes the situation remains stable.
Strategy's stock has been under pressure recently, influenced by external market factors and index adjustments, though this is not expected to severely impact investor sentiment.

Strategy Won't Have to Sell Bitcoin Even If Stock Prices Fall, Says Bitwise CIO

The Stability of Strategy’s Bitcoin Holdings

Matt Hougan, Chief Investment Officer at Bitwise, has stated that Strategy (MSTR) will not need to sell its substantial Bitcoin holdings if its stock price declines. In a note released on Tuesday, Hougan confidently asserted, “There is nothing about MSTR’s price dropping below NAV [net asset value] that will force it to sell.” He underscored the steadfast belief of chairman Michael Saylor in Bitcoin.

Hougan elaborated on the potential repercussions for the Bitcoin market if MSTR had to sell off its $60 billion in Bitcoin all at once, suggesting that it could equate to two years’ worth of Bitcoin ETF inflows. “But with no debt due until 2027 and enough cash to manage interest payments for the foreseeable future, I don't see a scenario where that’s necessary,” he explained.

Concerns about MSTR selling its Bitcoin holdings arose after CEO Phong Le suggested that offloading some assets might be considered a “last resort” if the company's market value fell below the worth of its Bitcoin stash. Source: Matt Hougan

Le explained that in such a scenario, selling Bitcoin could be justified to sustain the firm's “Bitcoin yield per share.” However, the company is also contending with an extended downturn in the cryptocurrency market, in addition to a potential delisting from the MSCI stock market index.

Weathering the Financial Storm

According to Hougan, Strategy's circumstances do not warrant a sell-off of its Bitcoin assets. He noted that with Bitcoin currently trading at roughly $92,000, it is “24% above the average price at which Strategy acquired its stash ($74,436).” This gives the company a significant buffer even if its stock dips below NAV, indicating that MSTR’s financial books do not reflect immediate pressure to sell off Bitcoin.

“The company has two key obligations regarding its debt: approximately $800 million per year for interest payments and the necessity to convert or roll over certain debt instruments as they come due,” Hougan added. Fortunately, he pointed out, “The interest payments are not a short-term worry. MSTR has $1.4 billion in cash, which means it can comfortably cover its dividend payments for about a year and a half.”

In the past 30 days, MSTR's value has dropped by 24.69%, closing at $186.01 last Friday. The decline may have been influenced by an October announcement from Morgan Stanley Capital International regarding potential exclusions of digital asset treasury companies from its indices if more than 50% of their balance sheets consist of crypto assets. Such a move could prompt index-tracking funds to sell, further pressuring MSTR's stock.

However, Hougan is not convinced that these developments will be detrimental to the stock’s performance or to investor sentiment towards Strategy. He shared his experience, noting that “historically, such occurrences have been less impactful than people think.” He recalled that when MSTR was added to the Nasdaq-100 Index last December, it triggered $2.1 billion in stock purchases by index funds, yet the price barely moved.

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