J.P. Morgan analyst Nikolaos Panigirtzoglou stated on Thursday that MicroStrategy's new Bitcoin trading strategy,
which allows the company to sell coins to avoid a liquidity crisis, creates additional risks for the broader cryptocurrency market.
Panigirtzoglou noted that the new policy creates a two-way flow risk for Bitcoin and increases uncertainty in the cryptocurrency market. According to the analyst, to reassure investors that MicroStrategy will not be forced to sell Bitcoin in the near future, the coverage period needs to be extended to 24-36 months.
This week, MicroStrategy announced the creation of the Digital Credit Capital Framework and approved a $1.25 billion Bitcoin monetization program, marking a shift from its previous buy-and-hold strategy.
The company also approved preferred share repurchase and share buyback programs to optimize its capital structure. A minimum dollar reserve target was set at 12 months of preferred dividend and interest expense. Current dollar reserves of $2.55 billion cover approximately 17 months of dividend payments.
MicroStrategy's Bitcoin purchases year-to-date have totaled $13.7 billion, representing approximately 70% of the total estimated inflow into digital assets, according to J.P. Morgan. The company holds 4% of the total Bitcoin supply.
The analyst noted that while the possibility of selling Bitcoin to pay dividends is generally viewed as a positive for most companies, MicroStrategy's position as a large buyer and holder of Bitcoin means that potential sales create uncertainty that could impact the company's valuation and increase the cost of issuing shares and debt instruments for future Bitcoin purchases.
Bitcoin prices declined in late May and early June after MicroStrategy disclosed in a document filed on June 1 that it sold 32 bitcoins between May 26 and May 31 to fund a dividend payment to preferred shareholders.