According to reports, Zach Pandl, head of research at MicroStrategy, has proposed that the company should sell at least $3 billion worth of Bitcoin to meet its cash payment obligations over the next two years. This move is seen as an attempt to restore market confidence in the firm's capital structure.
However, this strategy contains an internal contradiction. Pandl has simultaneously forecast that the dividend rate for MicroStrategy's Series A Convertible Preferred Stock (SRTC) will increase by 50 basis points. This hike is projected to raise the company's annual dividend payout by approximately $100 million over two years, a development that could potentially undermine market confidence instead of bolstering it. Currently, MicroStrategy pays around $1.2 billion in annual preferred stock dividends, with a significant portion tied to the SRTC shares.
As the world's largest publicly traded corporate holder of Bitcoin, MicroStrategy currently possesses 847,363 bitcoins. According to its latest filing with the U.S. Securities and Exchange Commission, the company purchased 520 bitcoins for $34.9 million between June 15 and June 21.
Concurrently, MicroStrategy has increased its dollar reserves by $300 million, bringing the total to $1.4 billion. This enhancement has shortened the company's projected ability to cover dividend payments from an estimated seven years down to approximately 14 months. Data indicates that by 2026, MicroStrategy's cash reserves have already decreased by 38%. Based on this, blockchain analytics firm CryptoQuant has advised the company to halt its Bitcoin purchases and prioritize replenishing its cash reserves.
It is noteworthy that CryptoQuant points out MicroStrategy is not obligated to sell Bitcoin to support the SRTC share price. The company could alternatively choose to increase the existing 11.5% dividend yield. Bitcoin proponent Samson Mow has emphasized that the SRTC shares possess a "self-healing mechanism." If the share price falls below the $100 reference price, MicroStrategy would cease issuing new preferred shares, thereby reducing supply. The lower price would naturally offer a higher yield to new buyers, attracting more demand and pushing the share price back towards the $100 level.
Whether this mechanism can function effectively against a backdrop of tightening cash flow remains a key focus for market observers. This represents a critical test for MicroStrategy's capital structure, following the significant depletion of its cash reserves.
Comments