Here’s why Strategy’s $216M Bitcoin sale may not be bearish after all

Strategy’s $216M Bitcoin sell-off disclosure has not sparked the death spiral projected by some analysts last week.

In fact, Grayscale now thinks the firm’s $1.25B BTC sale plan could help “support BTC price stability.”

In its latest report, Grayscale’s Head of Research Zach Pandl noted, 

The rebound in the price of STRC suggests investors are now more confident about the instrument. Strategy is selling more Bitcoin. But this will restore confidence in its financing structure and help Bitcoin find a more durable bottom, in our view.

After Strategy’s disclosure on Monday, the firm’s interest-paying preferred stock Stretch (STRC) briefly climbed above $90 for the first time since the 22nd of June.

STRC de-pegged from its $100-parity level in mid-June amid broader market concerns on how the firm would fund dividend obligations as the crypto winter extended itself. The initial USD reserve was also partially emptied to retire convertible debt that further compounded the worries. 

To address these concerns, Strategy announced a new plan that included a formal $1.25B BTC sale. The $216M BTC sell-off is just the first step aimed at having a buffer to cover the dividend obligations. 

Bitcoin fades Strategy’s $216M sale

Surprisingly, the markets have not reacted negatively as they did when Strategy sold 32 BTC. In the first week of June, BTC dumped by over 20% to $59K after Strategy disclosed that it sold 32 BTC. 

On Monday, BTC moved lower but quickly pared the losses and closed the day with gains of just 0.6%. 

Most analysts expected a similar negative reaction if the firm went ahead with the $1.25 billion BTC sale plan. In fact, JPMorgan warned against it and instead recommended increasing the USD reserve to 3 years’ coverage by selling MSTR shares. 

For JPMorgan, such a BTC sell-off would directly drive the market lower. 

Galaxy Research echoed a similar warning, adding that selling BTC won’t resolve the firm’s “structural issues.” In fact, Galaxy added that such a move would trigger a BTC sell-off, which would weigh down on STRC and MSTR. 

So far, the market has faded the fears. In fact, analyst James Van Straten said it could signal a market bottom for BTC. 

When bad news no longer pushes prices lower, the bottom may be in.

However, for Peter Schiff, a long-time Strategy critic, the firm might still be incurring losses since it has been selling BTC below its average buying price. 

Given MSTR’s average cost, that’s a realized loss of about $15K per Bitcoin, or about $54 million. With over 840K Bitcoin left to sell, the total losses will be much greater.

Worth noting, however, that BTC’s near-term recovery will depend on the FOMC meeting minutes scheduled for 8th of July. 

Final Summary

• Market faded Strategy’s $216M BTC sale as the price stayed above $63K 
• Grayscale billed the move as supportive for BTC to find a more “durable bottom.”