(Bloomberg) — Strategy Inc. said it has created a $1.4 billion reserve to fund future dividends and interest payments, allaying concerns that the Bitcoin accumulator could be forced to sell some of its roughly $56 billion worth of the cryptocurrency if the token’s prices continue to fall.
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The Tyson Corner, Virginia-based company said in a statement Monday that the new reserve, funded by proceeds from the sale of shares of Class A common stock, will cover at least 21 months of dividend payments. Over time, it plans to maintain enough cash in reserves to cover payments for up to two years.
The strategy’s MNAV – a key valuation metric that compares a company’s enterprise value to the value of its Bitcoin holdings – peaked at around 1.2 on Monday, according to its website, leading investors to fear it could soon turn negative. If that were the case, its CEO Phong Le suggested the company could sell some of its bitcoins.
“We can sell Bitcoin and if we need to reduce our dividend payout below 1x MNAV we will sell Bitcoin,” Le said on a podcast on Friday. He said this would only be done as a last resort.
Shares of the strategy fell more than 5% in pre-market trading on Monday, while Bitcoin was down about 6%. The stock pared those losses after the reserves announcement.
The company formerly known as MicroStrategy has switched its core business from software development to primarily holding Bitcoins. To finance the purchase of cryptocurrencies, it is raising equity as well as preferred stock. The software business does not generate enough free cash flow to cover dividends or interest payments. Bitcoin does not pay dividends.
Investors have historically viewed the strategy’s steady accumulation of Bitcoin as a sign of confidence in the cryptocurrency markets, while the selloff may be a cause for concern. After not adding to its Bitcoin pile for a week, the strategy purchased 130 Bitcoins for a total value of $11.7 million. It used common shares to finance the purchase.
“There’s the mathematical side of me that says it would be the perfect thing to do, and there’s the emotional side of me, my market side, that says we don’t really want to be the company that’s selling Bitcoin,” Le said in the podcast. “Generally speaking, for me, the mathematical side wins.”
The company also updated its full-year earnings guidance, having previously issued a forecast in October based on the assumption that Bitcoin would be worth $150,000 by the end of 2025. Now assuming a price range between $85,000 and $110,000, the strategy said it expects to report operating income that could range from a loss of $7 billion to a profit of $9.5 billion. The range varies so widely because accounting guidelines require strategies to value their Bitcoin holdings at the market price at the end of the quarter.
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