Digital assets firm Bitwise Europe has advised Strategy (formerly MicroStrategy) to lend out its Bitcoin to boost its recurring revenue
In a new report that examined the risks of Strategy’s stash to Bitcoin, the firm noted that Strategy’s BTC acquisition is not a risk to the Bitcoin ecosystem.
According to Bitwise Europe (formerly ETC Group), if Strategy should lend out just 50% of its current Bitcoin holdings at 4% per annum interest, it will be able to cover all its interest and dividend liabilities, including the most recent ones from its $21 billion perpetual preferred stock offering. Strategy currently holds 499,226 BTC.
It wrote:
The firm further said that Strategy could also explore other business ventures, such as covered call BTC options writing, to generate more revenue from its Bitcoins. Japan Metaplanet, which adopted the Bitcoin treasury in 202, was already using this method. Thus, it would not be a problem for Strategy.
The call on Strategy to utilize its Bitcoin holdings is in reaction to the potential liquidity risks the company could face due to its corporate debt. While the risks are not imminent, Bitwise believes the Michael Saylor-founded company could better prepare by changing its corporate business strategy.
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Currently, Strategy is focused on acquiring as much BTC as possible using various approaches, including debt and equity raises. However, according to Saylor himself, the company’s end goal is for Strategy to become the top “Bitcoin bank or Bitcoin finance company,” an objective that will likely lead to lending out BTC.
Meanwhile, Bitwise analysts also noted that Strategy is well-positioned to use its Bitcoin more efficiently now, especially because of changes in the FASB121 accounting rules, which allow the company to report its BTC at fair market value rather than recording impairment losses for every price drop.
Risk of liquidation for Strategy is very low, says Bitwise Europe analysts
Although the core part of the research focused on how the leading corporate Bitcoin holder could put its BTC to good use and increase recurring revenue, the report noted that the risks are not that high and are unlikely in the short term.
These concerns are not surprising as they are rooted in Strategy Bitcoin acquisition approach of buying BTC without any plan to sell, leading to cash shortage on its balance sheet. Almost all liquidity ratios for the company have declined over time, with the cash ratio falling from 2.10 in 2019 to 0.11 in 2024.
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The Altman Z-Score, which also measures financial distress for the company, was at 1.05 at the end of 2024, which signals solvency concerns despite actually being a sizable jump from the -9.78 in 2022.
Strategy assets growth vs liabilities (Source: Bitwise)
Despite all these indicators showing low liquidity, the company’s liability-to-asset ratio is lower than that of Alphabet and Microsoft, showing low bankruptcy risk. This is all down to its massive Bitcoin holdings, enabling it to survive any issue unless BTC sees a massive drop.
Bitwise analysts wrote:
Therefore, the likelihood of Strategy facing repayment obligations before they become due is very low. Even if they happen due to a massive decline in BTC value, the liquid nature of BTC and the structure of the company’s bonds mean it can sell off a small percentage of its BTC to meet its obligations.
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