Strategy creates a reserve of $1.44 billion to ensure payments even if Bitcoin falls

Source: PortaldoBitcoin Original Title: Strategy creates reserve of $1.44 billion to ensure payments even if Bitcoin falls Original Link: MicroStrategy, the Bitcoin treasury company founded by Michael Saylor, has established a reserve of $1.44 billion as a means to ensure continuous and stable dividend payments, even during periods of Bitcoin downturn.

Although this reserve seems to serve as a protection to prevent the company from having to sell part of its 3.1% stake in the total Bitcoin supply, MicroStrategy has not ruled out the possibility of having to sell BTC — with the company's CEO outlining what the future would look like if that were to happen.

MicroStrategy has built its cash reserve in dollars by selling MSTR shares over the past nine days, as revealed by CEO Phong Le in a statement. The company aims to have reserves equivalent to at least 12 months of dividends, with the ultimate goal of expanding this reserve to cover more than 24 months of dividends.

“Bitcoin is volatile, and what we want is to offer a digital credit product for investors averse to volatility, ensuring that Bitcoin's volatility will never affect their dividends,” said Michael Saylor, co-founder and CEO of MicroStrategy, during a conference call. “And to that end, we added a reserve in U.S. dollars.”

The measure comes after Le stated that MicroStrategy would sell its Bitcoins if its market-adjusted net asset value (mNAV) fell below 1 — which means that the company would be valued at an amount lower than the assets it holds. In the last company update conference call, MicroStrategy did not shy away from the statement but reinforced it.

“There are skeptics and cynics who believe that we couldn't, or wouldn't, or don't have the will to sell Bitcoins to finance dividends, and this sometimes becomes a negative narrative for investors betting on the decline of stocks. I think it's important to dispel this idea,” Saylor said.

“The company can not only sell Bitcoins to pay dividends, but can also sell Bitcoins with high appreciation, pay dividends, and then continuously increase its Bitcoin reserves every quarter, indefinitely,” he added.

MicroStrategy has become the leading digital asset treasury company after shifting its focus from its intelligence software solutions business in 2020. It now holds a reserve of 650,000 BTC, valued at approximately $56 billion, or about 3.1% of the total Bitcoin supply. This total includes 130 BTC purchased in the last week, after the company did not make any purchases in the previous week.

Throughout this period, Saylor publicly stated that you “should never sell your Bitcoins” — but his approach seems to have changed.

This occurs because the business model of the Bitcoin treasury company relies on paying dividends to its holders. Its main way of raising money to pay these dividends is by issuing common shares; however, the company stated in the conference call that this only makes sense when the net asset value (NAV) is above 1. As soon as the NAV falls below this level, the company will consider selling Bitcoins or Bitcoin derivatives. If MicroStrategy does not want to do any of this, it will use its new reserve in US dollars to cover the shortfall.

“The ultimate goal is to have at least 24 months of dividends in US dollars, so that, even if we cannot or do not want to issue shares, or do not want to sell Bitcoin, we can use the dollar reserve to cover two years of dividend payments,” Le explained.

In response to the announcement, MSTR shares fell more than 8%, recently reaching a price below $163 per share. The drop is 70% from its all-time high of $543, reached last year, while Bitcoin has fallen nearly 32%, to about $85,500, since hitting an all-time high above $126,000 in October. The net asset value (NAV) of MicroStrategy is 1.13, according to its website.