The Biggest Risk for Bitcoin Has Been Eliminated

Original | Odaily Planet Daily (++@OdailyChina++)

Author | Azuma (++@azuma_eth++)

After more than two months, Strategy has finally resumed buying Bitcoin.

On the evening of August 31, Beijing time, Strategy announced that it had purchased a total of 4,603 BTC between August 24 and August 30, at a cost of approximately $369.7 million, with an average purchase price of $80,318. As of August 30, Strategy holds a total of 845,050 BTC, with a cumulative investment cost of approximately $63.73 billion and an average holding cost of $75,412.

At the same time, Strategy also did two other things that week—injecting about $30 million into a "USD Cash" liquidity account and spending approximately $151.8 million to repurchase 1.557 million shares of STRC. As of August 30, Strategy's "USD Reserve" stands at $5.1 billion, with $1.61 billion in USD cash, totaling $6.71 billion.

*Note from Odaily: The difference between USD Reserve and USD Cash is that the former can only be used to pay dividends on Strategy's preferred shares and interest on outstanding debts; the latter can be used for a wider range of treasury purposes, including purchasing Bitcoin, expanding USD reserves, broader capital management purposes, and other similar objectives.

From a price perspective, Strategy's trading activities around BTC over the past two months have been somewhat awkward—Lookonchain statistics indicate that Strategy sold a total of 6,916 BTC during the past two months, with an average selling price of approximately $62,081, while the average price for the recent repurchase has risen to $80,318... It seems that Strategy has made a not-so-smart "sell low, buy high" move.

However, if we take a broader view, we can see that this series of transactions is by no means a failure for Strategy; in fact, it can be considered quite successful. After all, the main purpose of Strategy's selling over the past two months was not to escape a peak, nor was it to predict a decline in BTC; what it truly aimed to resolve was a crisis that was once more troublesome than the price of BTC—STRC's decoupling and the cash reserve issues that arose from it.

Now, after continuously selling some BTC, replenishing USD reserves, adjusting the STRC mechanism, and initiating large-scale repurchases, Strategy has finally resumed buying BTC. To some extent, this also means that the risk that had been hanging over Strategy for the past two months has at least been addressed in stages.

STRC Decoupling and Cash Reserve Crisis

For long-term investors following Michael Saylor and Strategy, everything that happened this summer was somewhat unexpected.

Over the past few years, Strategy has almost established an extremely simple and firm business narrative—raise funds, then buy BTC. Whether it was issuing common stock, convertible bonds, or later launching a series of preferred stock products like STRK, STRF, STRD, and STRC, Strategy's capital operations ultimately pointed to the same goal: continuously raising funds from the capital market and expanding its BTC holdings.

In this system, the most important factor is not how much cash flow Strategy's software business can generate, but whether the capital market is still willing to continuously provide fuel for this "fundraising machine.**

However, in June this year, the problem first appeared with STRC. As Strategy's most important floating-rate preferred stock product, one of STRC's initial core positions was to trade as close to $100 as possible. To maintain this goal, Strategy would adjust dividends and other means to keep its attractiveness, allowing STRC to serve as a relatively stable financing tool to continuously absorb funds from the market. However, as STRC began to decouple and the situation worsened, this mechanism also began to face challenges.

*Note from Odaily: See "STRC Decoupling 11%, Can Strategy's Perpetual Motion Machine Still Function?"; "If STRC Doesn't Re-anchor, BTC Won't Have a Bull Market."

For Strategy, the biggest problem with STRC's decoupling is that—once the market price remains below the issuance price for an extended period, the company's ability to continue financing through issuing STRC will be significantly impacted. This precisely touches on the core part of Strategy's capital model.

The reason Strategy has been able to continuously expand its BTC holdings over the past few years fundamentally relies on ongoing financing. When financing channels such as common stock and preferred stock operate smoothly, the company can continuously obtain new funds and invest them in BTC; but once a key financing channel fails, and the company faces ongoing cash expenditures such as preferred stock dividends and debt interest, liquidity pressure will quickly emerge.

Thus, on June 29, Strategy launched a self-rescue plan called the "Digital Credit Capital Framework." One of the core changes in this plan is that Strategy officially opened the door for "selling BTC" for the first time.

*Note from Odaily: See "Lightning Five Whips! Strategy's Self-Rescue Plan Officially Released."

According to the relevant arrangements, the company can sell some BTC to provide funds for preferred stock dividends, debt interest, and other expenditures, or to replenish USD reserves when management believes that selling BTC is more beneficial than issuing common stock or engaging in other capital market financing.

In other words, the previous "only in, not out" BTC treasury has been given another function for the first time—when there is pressure on capital market financing, BTC itself can also become a source of liquidity for Strategy.

Subsequently, Strategy officially began large-scale BTC sales—prior to this, there had actually been a small-scale "desensitization" test, but it was only 32 BTC.

Crisis Repair Status

Looking back, since the announcement of the "Digital Credit Capital Framework" on June 29, the main line of Strategy's operations over the past two months has been very clear—sell some BTC for liquidity, while continuously replenishing cash reserves through MSTR ATM and repurchasing STRC on a large scale to repair the decoupling, until the current reserve pressure is alleviated.

In terms of BTC sales, Strategy sold 3,588 BTC in the week of July 6, at an average price of approximately $58,603, totaling about $210 million; sold 1,638 BTC in the week of August 3, at an average price of approximately $61,660, totaling about $101 million; and sold 1,690 BTC in the week of August 10, at an average price of approximately $64,260, totaling about $108.6 million. In total, Strategy sold 6,916 BTC, cashing out approximately $430 million.

However, selling coins is only part of the entire self-rescue plan. Over the past two months, Strategy's main source of funds has still been from MSTR's ATM sales. By continuously selling common stock, the company increased its USD reserves from $2.55 billion on June 29 to $5.1 billion; at the same time, it established a USD cash account in late August, which reached $1.61 billion as of August 30. The two parts of USD assets totaled $6.71 billion, an increase of approximately $4.16 billion compared to the end of June, with an increase of over 160%.

At the same time, Strategy has also been continuously repurchasing STRC, with the latest week seeing Strategy spend another $151.8 million to repurchase 1.557 million shares of STRC. Since the repurchase began at the end of July, the company has used approximately $635 million to repurchase STRC.

Under the triple strategy, this adjustment seems to have begun to show results.

Aside from the cash reserve situation mentioned earlier, the most obvious sign of recovery is the decoupling status of STRC. As of the morning of September 1, Beijing time, when the US stock market closed, STRC had rebounded to around $97, leaving only about 3% to reach the target position of $100. Strategy's management had previously stated in the Q2 earnings call that the goal is to push STRC back to close to $100 before September 8, and it currently looks quite promising.

The market's biggest concern, the hidden risk, has been alleviated in stages.

Of course, at this stage, we cannot directly conclude that Strategy has completely "escaped danger."

Whether STRC can successfully re-anchor before September 8 and remain stable around $100 in the long term remains to be seen; Strategy's large preferred stock system still implies ongoing cash expenditures, and whether its "financing—buying coins" capital machine can return to normal operation in the future also depends on whether the market is willing to continue providing funds.

But at least compared to two months ago, Strategy has regained some initiative—cash reserves have significantly increased, STRC's decoupling has noticeably narrowed, and the company has finally transitioned from continuous selling to buying coins again.

In summary, Strategy's operations over the past two months can be described as a very wise "sell low, buy high." Although it may seem like a loss on the surface, it has resulted in over $4 billion in new USD assets, hundreds of millions in STRC repurchases, and the adjustment space gained for the entire capital system when STRC's decoupling and cash reserve issues once raised market concerns.

The huge hidden risk that hung over the market may not have completely disappeared, but at least it is no longer as dangerous as before.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.