The recent announcement of Strategy's $1.25 billion Bitcoin sale has sparked a variety of opinions, and Galaxy Research has now shared its insights regarding the monetization strategy unveiled earlier this week by the world's largest Bitcoin treasury firm.
Alex Thorn, who heads research at Galaxy, noted that while market reactions to the plan have been generally positive, it does not eradicate the underlying "structural risks" that persist. He emphasized that although Strategy's approach is a step in the right direction, it may not permanently resolve these deep-rooted challenges.
Current Financial Framework of Strategy
As part of this new plan, Strategy successfully raised $1 billion in cash and established a cash reserve buffer for the next 12 months, effectively covering about 17 months of its obligations. Furthermore, the firm has approved the sale of up to $1.25 billion in Bitcoin to help meet its interest liabilities.
Following these developments, shares of MSTR surged from $82.5 to $100, and preferred stock STRC climbed 26%, recovering from a previous low of $71 to $90. Although STRC remains below its $100 peg, the upward trend reflects a generally favorable market sentiment towards Strategy's initiatives.
The Growing Obligations
However, Thorn warned that Strategy's financial commitments are set to escalate within the next two years due to $6.7 billion in convertible notes that are due. He cautioned that the planned Bitcoin sales could exacerbate the weaknesses of MSTR and STRC.
Galaxy's approach promotes a more balanced alternative for Strategy. Beyond maintaining cash reserves and executing BTC sales, Thorn suggests exploring additional methods to enhance cash flow without selling Bitcoin. He argues that a company holding 847,363 BTC should not let temporary cash-flow issues turn into a deeper crisis.
Exploring Income Generation Options
Thorn proposed income generation strategies such as lending BTC or implementing options trading on a portion of the Bitcoin stack, which could mitigate risks associated with counterparties. This concept mirrors approaches taken by companies like Metaplanet, which have successfully used options to accumulate cash flow.
In conclusion, Galaxy's recommendation serves as a middle ground, preserving the interests of MSTR shareholders without resorting to Bitcoin sales. It provides a sustainable route for addressing Strategy's cash-flow concerns while avoiding potential dilution of assets.
Contrastingly, JPMorgan has advocated for increasing the cash reserve buffer to span 2 to 3 years by liquidating more MSTR stock instead of tapping into Bitcoin reserves. This fundamentally diverges from Galaxy's more conservative approach.
