Strategy (MSTR +1.34%), once known as MicroStrategy, owns 842,138 Bitcoins (BTC +0.81%) with a market value of $54.5 billion. That makes Strategy Bitcoin's largest corporate investor with roughly 4% of the cryptocurrency's total supply on its balance sheet.
Strategy started hoarding Bitcoin back in 2020. Its share count has more than quadrupled over the past six years as it issued additional shares and convertible debt to fund those purchases. Its chairman, Michael Saylor, who led Strategy's transformation from a software company into a Bitcoin hoarder, also said he would "never" sell his own Bitcoin.
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That's why it was surprising when Strategy recently authorized a multi-billion-dollar sale of its Bitcoin holdings to fund its buybacks, dividends, and other corporate obligations. Let's see why it's seemingly reversing its long-term strategy -- and what it means for the company's investors.
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Key Data Points
What did Strategy actually authorize?
In late July, Strategy said it would sell Bitcoin to raise as much as $1.25 billion in U.S. dollar reserves, repurchase up to $1 billion in its preferred stock (STRC +1.44%), fund its preferred stock dividends (at an 11% yield), and buy back another $1 billion in its common stock.
By the end of July, Strategy had sold $218 million in Bitcoin to fund its preferred stock dividends and $25 million on buybacks for its preferred shares. It plans to keep buying back its preferred shares as long as they trade below $100, but it hasn't repurchased any of its common stock yet.
That shift strongly suggests that Strategy thinks its own stock, which has declined 74% over the past 12 months, is more undervalued than Bitcoin, which fell 43% during the same period. But with an enterprise value of $40.4 billion, Strategy might seem ridiculously overvalued at 82 times this year's sales.
However, that enterprise value is actually lower than the market value of its Bitcoin holdings. Therefore, if Strategy expects Bitcoin's value to keep rising over the long term, it actually makes sense to trim some of its Bitcoin holdings to buy back more of its shares.
Is Strategy losing faith in Bitcoin?
Strategy's decision to sell more Bitcoin to cover buybacks and dividends might seem like a red flag for the world's top cryptocurrency. Yet it's also a prudent move, since fears of interest rate hikes could limit Bitcoin's upside potential for at least the next few months. Strategy isn't really turning bearish on Bitcoin, which accounts for almost the entire business. It simply makes more sense to convert some of its holdings to cash so it can buy back more of its shares when they become too cheap to ignore. Michael Saylor also hasn't sold any of his own personal Bitcoin holdings -- and he still expects its price to hit $21 million by 2046.
