Strategy has authorized a multi-billion-dollar Bitcoin sale to fund stock buybacks and preferred-stock dividends, a shift from the buy-and-hold approach that made it Bitcoin's largest corporate holder. The company has already sold Bitcoin to cover its first payments, even as Chairman Michael Saylor keeps his own Bitcoin holdings untouched.
Strategy, the software company once known as MicroStrategy, has authorized the sale of Bitcoin to raise as much as $1.25 billion in U.S. dollar reserves. The company will use the cash to fund stock buybacks, preferred dividends and other corporate obligations, marking a break from the strategy that made it Bitcoin's largest corporate investor.
What the plan actually funds
The company will repurchase up to $1 billion of its preferred stock, which pays an 11% dividend yield, and buy back another $1 billion of its common stock. By the end of July, it had sold $218 million in Bitcoin to fund its preferred dividends and $25 million to buy back preferred shares, but it hasn't yet repurchased any common stock. It plans to keep buying back the preferred shares as long as they trade below $100.
Why sell Bitcoin to buy back shares
Strategy holds 842,138 Bitcoins worth $54.5 billion, roughly 4% of the cryptocurrency's total supply. The company started buying in 2020, and its share count has more than quadrupled over the past six years as it issued shares and convertible debt to fund the purchases.
But the numbers now cut the other way. Strategy stock has fallen 74% over the past 12 months, while Bitcoin fell 43% in the same period.
That gap strongly suggests Strategy now sees its own stock as more undervalued than Bitcoin. Its enterprise value of $40.4 billion sits below the market value of its own Bitcoin holdings, so trimming some Bitcoin to buy back its own shares can make sense if management still expects Bitcoin's value to keep rising over the long term.
Not a bet against Bitcoin
Strategy isn't really turning bearish on Bitcoin, which accounts for almost its entire business. However, fears of an interest rate hike could limit Bitcoin's upside for at least the next few months, which is why converting some holdings to cash for buybacks makes more sense for now.
Saylor hasn't sold any of his personal Bitcoin holdings, and he still expects its price to hit $21 million by 2046.
Source: The Motley Fool
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