JPMorgan Says Strategy's Dollar Reserves, Not Bitcoin, May Hold Key to Restoring Investor Confidence

JPMorgan analysts said Strategy may need to rebuild its cash reserves to restore investor confidence, writing in a Monday note that the Bitcoin-buying firm's growing reliance on dollar liquidity has become a central concern for shareholders of its preferred stock. The investment bank noted that the company's flagship preferred stock, Stretch (STRC), has surpassed a $10 billion market capitalization, and that investors' confidence has become tethered to the health of Strategy's cash balance, which recently contracted.

"a rebuilding of the company's dollar reserves might be needed to restore confidence and reduce investor concerns that the company would sell more Bitcoin to cover dividend payments," the analysts wrote, referring to Strategy's disclosure a week ago. The analysts pointed out that, before the company cut its cash reserves by 61% to repurchase debt at a discount, Strategy had built a cash cushion of as much as $2.25 billion. Prior to that reduction, the company only had enough cash to cover just over six months' worth of STRC dividends. Strategy's STRC preferred stock has maintained an annualized dividend rate of 11.5% for months, and Strategy said it has now earmarked $1 billion for managing debt and STRC dividends, which are set to shift to a bimonthly cadence starting in July.

The company, co-founded and chaired by Michael Saylor, drew scrutiny after selling 32 Bitcoin for $2.5 million to ensure STRC received regular distributions, a move that triggered Strategy's worst weekly performance since November 2022 even though the sale represented a small portion of the firm's overall holdings. Strategy then responded to last week's share-price plunge by purchasing $100 million worth of Bitcoin and increasing its cash balance.

Strategy said Monday that it bought 1,550 Bitcoin for $101 million, returning to regular purchases after the earlier liquidation. In an SEC filing, the Tysons Corner, Virginia-based firm indicated it now owns 845,256 Bitcoin. With Bitcoin trading around $63,000, a 1.4% increase over the past day, the company's stockpile was worth roughly $53.3 billion, according to CoinGecko, putting the holdings about $10.7 billion underwater.

Strategy's shares rose 3.4% on the day and were up 5% intraday to $126, according to Yahoo Finance, as Bitcoin recovered from a 19-month low. The stock remains down from last year's high of $457, though year-to-date losses have narrowed since shares fell as low as $104 in early February. JPMorgan analysts highlighted Strategy's broader importance to the crypto market, noting that a "majority of Bitcoin's demand [so far this year] had come from Strategy's Bitcoin purchases," which have totaled 171,473 Bitcoin.