Bitwise's Hougan: Strategy (MSTR) Won't Be Forced to Sell Bitcoin to Stay Afloat

Key Takeaways

• Bitwise's Matt Hougan asserts that Strategy (MSTR) won't be forced to sell its Bitcoin holdings even if its share price drops.
• Hougan points to chairman Michael Saylor's unwavering belief in Bitcoin as a reason for the company's stability.
• The company has sufficient liquidity to cover interest payments until 2027.
• Hougan discusses concerns about Strategy's declining share price and potential delisting from the MSCI index.
• He downplays the impact of these factors on the company's share price.

A Deeper Look at Strategy (MSTR) and Bitcoin

Matt Hougan, chief investment officer at Bitwise, has affirmed that Strategy (MSTR) will not be compelled to sell its Bitcoin holdings to remain financially stable, even in the event of a share price decline. Hougan dismissed claims suggesting otherwise as “just flat wrong.”

In a note published on Tuesday, Hougan highlighted chairman Michael Saylor’s steadfast conviction in Bitcoin as a key reason why the company would not need to liquidate its holdings. “It would indeed be very bad for the Bitcoin market if MSTR had to sell its $60 billion of Bitcoin in one go—that’s akin to two years of Bitcoin ETF inflows,” Hougan stated.

He further explained that with no debt due until 2027 and sufficient cash reserves to cover interest payments in the foreseeable future, he does not foresee this scenario materializing.

Concerns About Bitcoin Sales

Fears regarding a potential Bitcoin sell-off by Strategy arose after the company’s CEO, Phong Le, mentioned last week that the company might offload some of its holdings as a last resort if Strategy's market value were to slip below the value of its Bitcoin assets.

Le suggested that if this situation were to occur and Strategy's financing options dried up, selling some Bitcoin would be justifiable to protect the firm’s “Bitcoin yield per share.”

Strategy is also navigating an extended downturn in the cryptocurrency market, which has led to a decline in its share price, as well as the possibility of being delisted from the MSCI stock market index.

Hougan: Strategy Can Weather the Storm

Hougan believes that Strategy's situation is not critical enough to warrant selling Bitcoin, as the cryptocurrency is trading around $92,000, which is “24% above the average price at which Strategy acquired its stash ($74,436).”

He added that the company has considerable leeway even if its stock falls below its net asset value, as Strategy’s financial records show no near-term pressure that would force it to liquidate Bitcoin.

“MSTR has two relevant obligations on its debt: It needs to pay about $800 million a year in interest and it needs to convert or roll over specific debt instruments as they come due,” he clarified.

He further stated, “The interest payments are not a near-term concern. The company has $1.4 billion in cash, meaning it can make its dividend payments easily for a year and a half.”

Impact of Potential MSCI Delisting

Over the past 30 days, MSTR has experienced a decline of 24.69%, closing trading on Friday at $186.01.

Part of this downward pressure on the stock price may be attributed to the announcement in October by the MSCI stock market index, which indicated that it might exclude digital asset treasury companies with balance sheets comprising more than 50% crypto assets.

Such a move would force index-tracking funds to sell, thereby placing additional pressure on Strategy.

However, Hougan does not anticipate that this will significantly impact investor sentiment towards Strategy or its share price, arguing that historically, these types of occurrences have had less impact than expected.

“My experience from watching index additions and deletions over the years is that the effect is typically smaller than you think and priced in well ahead of time,” he said. “When MSTR was added to the Nasdaq-100 Index last December, funds tracking the index had to buy $2.1 billion of the stock. Its price barely moved.”