There has been some pushback on MicroStrategy’s handling of its Bitcoin and dollar reserves, particularly in the wake of a decision to pare back its cash on hand to a six-month cushion. It is a move that has put the company in the crosshairs regarding its risk management and called into question its staying power.
Concerns Over Reserve Management
An expert on the Unchained podcast put it plainly: MicroStrategy is being made an example of for how it is run. The trouble with the new six-month reserve figure is that it has set off warning signs for those watching the market. In the view of naysayers, it is a way of leaving the door open to liquidity problems when the price of Bitcoin swings.
To put those concerns to rest, MicroStrategy has put out a revised plan. Going forward, the firm will ensure that its reserves are good for at least 12 months, barring any other word from the board. It is meant to be a signal to investors that the company can still make ends meet, whether that means paying out dividends or covering the day-to-day costs of doing business.
Share Buybacks and Token Strategy
With its updated plan, MicroStrategy is opening the door to new share buyback options. It has put in place the means to form buyback pools for preferred and common stock, not to mention the STRC token. As was noted in some Unchained coverage, it is a move that affords the firm the leeway to support its share price and make the most of any market mispricing.
Then there is the matter of the STRC. An expert on the subject points out that so long as the token hovers under $100, MicroStrategy can buy them back for less. While that is a sound way to strengthen the balance sheet, it is also a sign that there is still some doubt in the market over what the token is worth.
Investor Reactions and Strategic Options
MSTR and the STRC token have yet to reach their mark, even with the recent changes in strategy. It is no secret, as we have covered on Unchained, that this kind of underperformance has put some investors on edge over where the company is headed and what it can deliver.
One way to put minds at ease would be for MicroStrategy to make a point of rebuilding its dollar reserves to 22 months’ worth of operating costs, an expert suggested. But there is a trade-off: while it fortifies the balance sheet, the dilution of Bitcoin per share may not sit well with all shareholders. That is the tightrope the company has to walk in the face of market headwinds.
For now, the firm’s approach to Bitcoin is being put to the test. All eyes will be on how it handles things like reserve management and any plans to buy back tokens in the coming period.
Source — Unchained: https://www.youtube.com/watch?v=lAGJvogyr5o
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