Strategy Pauses Bitcoin Purchases, Raising Market Concerns

As bitcoin tries to recover after its plunge below $81,000, Strategy, one of the largest institutional accumulators of BTC, has chosen silence. For the first time in weeks, the company did not release any announcement on Monday regarding its weekly acquisitions. An unusual behavior that raises many questions.

Strategy marks a historic pause in its Bitcoin accumulation

Lance Vitanza, an analyst at TD Cowen, revealed Monday morning that Strategy did not issue any securities under its market price offering programs. The company, accustomed to starting each week with the announcement of its latest bitcoin acquisitions, thus marked an unusual pause. 

This decision comes as its stock price wobbles dangerously near its lowest level in 14 months.

Strategy’s stock stood at $179 on Friday, a 5% rebound. However, this surge does not mask the reality: a dizzying 67% plunge from the peak of $543 reached last year.

Over the past month alone, the stock lost 38% of its value, closely following bitcoin’s downward trajectory. The crypto, which hit an all-time high of $126,000 last month, now trades around $88,000, after falling to $81,500 last week.

This pause in purchases is not completely unprecedented. Strategy had already observed a similar halt in early October, coinciding with the end of a fiscal quarter. 

However, the current context differs radically. The company’s market capitalization fell below the value of its bitcoin reserves earlier this month, thereby undermining its ability to increase its holdings per share through the issuance of common stock.

Clouds are gathering over Strategy

Strategy’s future crystallizes concerns with the specter of exclusion from MSCI indices next February. The organization has highlighted similarities between Strategy and investment funds, a category excluded from its indices. For Lance Vitanza, this comparison remains “as misguided as it is regrettable.” 

The analyst defends Strategy’s identity as “a publicly traded operating company with a $500 million software business and a unique treasury strategy using Bitcoin as productive capital.”

Yet, the consequences of a withdrawal would be dramatic. JPMorgan estimates capital outflows could reach $11.6 billion if Strategy leaves the MSCI indices. 

A massive forced sale would occur precisely when the stock already trades “at significantly depressed levels,” according to Vitanza. This scenario could permanently jeopardize the Bitcoin accumulation model that propelled Strategy to a key player status.

In the face of these challenges, the company has adapted its financing strategy. This year, faced with the declining profitability of common stock issuances, Strategy turned to dividend-bearing preferred shares to raise billions of dollars. 

Nevertheless, Strategy retains a major asset: 649,870 bitcoins in reserve. But this pause raises a crucial question: is it simply a breather before resuming the race, or is the company completely rethinking its strategy? The coming weeks will be decisive.