Strategy (MSTR.US) accrued $8.2 billion in Bitcoin impairment losses in the second quarter! Saylor adjusts coin storage strategy to strengthen liquidity management to cope with the crypto winter

The Zhitong Finance App learned that Strategy (MSTR.US), the listed company with the largest Bitcoin holdings, announced second-quarter results on Thursday. As the price of Bitcoin continued to fall, the company accrued an impairment loss of US$8.22 billion on Bitcoin holdings worth approximately US$58 billion, resulting in huge losses during the quarter.

According to financial reports, the cumulative decline in Bitcoin prices in the second quarter of this year was about 14%. By the end of June, it was still more than 45% lower than a year ago, dragging down Strategy's large-scale Bitcoin holdings.

Notably, Strategy's founder and chairman Saylor has recently begun to adjust his long-standing Bitcoin reserve strategy. At the beginning of June this year, the company sold about $2.5 million in Bitcoin, on a smaller scale, but this is the first symbolic shift in Strategy's long-standing almost “just buy, don't sell” strategy. Subsequently, the company launched a new financing framework in July, giving management greater flexibility to sell Bitcoin, buy back securities, and optimize liquidity management according to market conditions.

Over the past nine months, Bitcoin has continued to fall from its all-time high, raising market concerns about Strategy's model of continuing to increase Bitcoin holdings through leverage. This adjustment of the financing framework also means that the company's strategic focus is beginning to shift from simply expanding its Bitcoin holdings to maintaining liquidity, repurchasing discounted securities, and selling part of Bitcoin in due course when the appeal of issuing new securities declines.

Strategy said that at present, the company's cash reserves have increased to US$3.75 billion, which is enough to cover more than 2.1 years of dividends and interest expenses, providing the company with a stronger financial buffer during the downturn in the cryptocurrency market.

Brian Dobson, managing director of Clear Street Equity Research, said that for companies like Strategy, the most important thing right now is to prove to the market that they have sufficient liquidity and the ability to overcome the cryptocurrency bear market, which is particularly critical at this stage.

Over the past year, Strategy's stock price has fallen by a cumulative total of about 75%, while Bitcoin fell by about 45% during the same period. However, since Saylor launched a large-scale Bitcoin hoarding strategy in 2020, the company's stock price has accumulated a cumulative increase of more than 600%. Strategy's share price fell slightly by 0.7% after the earnings report was announced.

Since 2020, Strategy has raised a total of about 60 billion US dollars through various financing instruments such as common shares, convertible bonds, and preferred shares to continue to buy Bitcoin and allocate it as an important asset to fight inflation. However, as the cryptocurrency market continues to adjust in this round, the company has suspended continuing to increase its Bitcoin holdings while increasing its cash reserves by selling common shares, although this move may further dilute existing shareholders' equity.

Furthermore, the floating interest rate perpetual preferred stock Stretch (STRC), which was launched last year and was originally planned to gradually replace common shares as the main financing instrument, has continued to fall below the price range suitable for issuance since May of this year, making it uneconomical to continue issuing these securities.

On Monday, Strategy announced that the company had repurchased approximately $25 million of STRC preferred shares in the previous week. This was the first time since the product was launched. Currently, STRC is still trading at a face value of less than $100.

Analysts pointed out that the large-scale coin storage model established by Saylor during the Bitcoin bull market attracted a large number of investors who wanted to gain exposure to Bitcoin but were unwilling to directly hold the coin to buy Strategy shares, making it once one of the most actively traded stocks on Wall Street. Now, the company has begun to sell some bitcoins, which not only means a shift in long-term reserve strategies, but is also viewed by some market participants as a necessary measure to calm investors and strengthen balance sheets. Strategy is currently continuing to increase its cash reserves, in part to ensure timely payment of interest on debt and preferred stock dividends in the future.

Market participants believe that strengthening liquidity management will help Strategy withstand the downturn in the cryptocurrency market for a longer period of time, but the key factors that ultimately determine whether its Bitcoin accumulation model can once again be recognized by the market will still depend on whether the Bitcoin price can resume the upward trend.

Brian Dobson said that in this earnings season, investors' biggest concerns will be how management will adjust its Bitcoin accumulation strategy in the future and whether Strategy will continue to stick to its long-term Bitcoin allocation path.