(Bloomberg)– Strategy Inc. said it has created a $1.4 billion reserve to fund future dividend and interest payments, easing concerns that the Bitcoin accumulator could be forced to sell some of its roughly $56 billion worth of cryptocurrency if token prices continue to fall.
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The Tysons Corner, Va.-based company said in a statement Monday that the new reserve, funded by proceeds from the sale of Class A common stock, would cover at least 21 months of dividend payments. Over time, he plans to keep enough cash in reserve to cover up to two years of payments.
Strategy’s mNAV — a key valuation metric comparing the company’s enterprise value to the value of its Bitcoin holdings — stood at around 1.2 on Monday, according to its website, sparking investor fears that it could soon turn negative. If this were to happen, its CEO Phong Le had suggested that the company could sell some of its Bitcoins.
“We can sell Bitcoin and we would sell Bitcoin if we needed to fund our dividend payments below 1x mNAV,” Le said in a podcast Friday, noting that this would only be done as a last resort.
Shares of Strategy were down more than 5% in premarket trading Monday, while Bitcoin was down about 6%. The stock pared these losses after the reserve announcement.
Formerly known as MicroStrategy, the company’s core business has shifted from software development to holding Bitcoin. In order to finance the cryptocurrency purchases, it raised equity as well as preferred shares. The software industry does not generate enough free cash flow to cover dividend or interest payments. Bitcoin does not pay dividends.
Historically, investors have viewed Strategy’s steady accumulation of Bitcoin as a signal of confidence in cryptocurrency markets, while sales could portend concern. After a week of no additions to its Bitcoin stack, Strategy purchased 130 Bitcoins for a total price of $11.7 million. She used common stock to finance the purchase.
“There’s my mathematical side that says this would absolutely be the right thing to do, and there’s my emotional side, my market side, that says we don’t really want to be the company that sells Bitcoin,” Le added in the podcast. “Generally speaking, for me, it’s the math side that wins.”
The company also updated its full-year profit forecast, after issuing a forecast in October based on the assumption that Bitcoin would be worth $150,000 by the end of 2025. Now assuming a price range of between $85,000 and $110,000, Strategy said it expects to report an operating profit that could range from a $7 billion loss to a profit of 9.5 billion dollars. The range varies widely because accounting guidelines require Strategy to value its Bitcoin holdings at market value at the end of the quarter.
