In brief
Strategy purchased $450 million worth of Bitcoin.
A self-imposed restraint triggered a “chain reaction,” Benchmark analysts said.
The firm could be tapped in the S&P 500’s next rebalancing.
Strategy recently purchased 4,000 Bitcoin worth $450 million, raising funds for its latest acquisition mostly by issuing common shares, according to a press release.
The Tysons Corner, Virginia-based firm now owns roughly 636,500 Bitcoin worth $70.6 billion. Strategy sold $425 million in common stock compared to $46.5 million in preferred shares.
Strategy has come up with myriad ways to fund its Bitcoin purchases, but the company has traditionally leaned on common shareholders as a way to grow its stockpile. In recent weeks, that practice has drawn outsized attention as Strategy has revised its corporate playbook.
The Bitcoin-buying firm modified a self-imposed constraint, which prevented it from diluting common shareholders when its stock traded at less than a 2.5x premium to its Bitcoin holdings. Although the move was intended to convey discipline, under the recent modification, Strategy can issue common shares “when otherwise deemed advantageous.”
Strategy shares changed hands around $346 on Monday, according to Yahoo finance. The company’s stock price has slid nearly 5.5% from $372 over the past month. In November, Strategy’s stock price spiked as high as $543, following the U.S. presidential election.
In a Monday note, analysts at investment bank Benchmark acknowledged retail investors’ disquiet. However, they said concerns among investors that Strategy’s game plan is being mismanaged by Executive Chairman and co-founder Michael Saylor are misplaced.
“Amid a proliferation of Bitcoin strategy companies, MSTR remains the industry standard and benchmark,” they wrote, while reprising a “Buy” rating and $705 price target.
Colloquially known as Strategy’s multiple-to-net asset value, the firm’s mNAV stood at 1.5x on Monday, according to Saylor Tracker. Within the past year, Strategy has traded at as much of a 3.9x premium to its Bitcoin holdings, but the ratio has been trending downward for months.
Strategy’s self-imposed restraint likely triggered a “chain reaction,” Benchmark analysts wrote. As the company’s mNAV started sliding last month, the market interpreted that as a negative sign for its ability to buy Bitcoin, with “premium compression begetting more compression.”
Strategy’s initial move may have been aimed at supporting the firm’s mNAV, but it became “counterproductive by starving the program of cheap capital,” the analysts added.
The firm’s updated guidance on common stock issuance reflects the “iterative and opportunistic” approach it’s taken to buying Bitcoin since its journey began in 2020, Benchmark analysts said, describing its return to normal as “not a capricious decision.”
Strategy’s stock price has wavered in recent weeks, but its inclusion in the S&P 500 would drive billions of dollars in passive demand for shares, according to Benchmark analysts. The company has met all the qualifications on paper for inclusion in the index’s rebalancing this month, with a decision expected on Friday.
Crypto-native firms like Coinbase have already joined the index. But the analysts noted that S&P Index Committee could view Strategy differently, considering Strategy’s income has come almost entirely from swings in the value of its Bitcoin holdings.
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