CryptoQuant Says Strategy Still Needs Systematic Bitcoin Trading Rules

CryptoQuant said Strategy’s new capital management strategy has eased liquidity concerns but still lacks systematic rules for buying and selling Bitcoin.

The Block reported July 17 that CryptoQuant Head of Research Julio Moreno, in a report, assessed both the results and the limits of Strategy’s new Digital Credit Capital Framework, which was introduced to dispel near-term liquidity concerns.

According to the report, Strategy sold 3,588 Bitcoin for $216 million between June 29 and July 5. It then raised an additional $466.7 million by selling MSTR common stock between July 6 and July 12. Its remaining Bitcoin holdings stand at 843,775.

The back-to-back asset sales improved the company’s financial liquidity. Its US dollar reserves surged to $3 billion from $1.44 billion. The period for which it can assure dividend payments on preferred stock STRC lengthened to 29 months from 14 months. STRC, which had fallen to $75 during the liquidity scare, has recovered to about $88.

Moreno said, however, that the company still lacks fundamental capital management principles that go beyond short-term measures. The new framework governs how Strategy raises capital, but does not provide a valuation model for when to buy Bitcoin. Without explicit standards, he wrote, the company risks repeating a pattern of buying near market tops when prices rebound.

He also pointed to the absence of strategic selling rules for bull markets. Strategy’s Bitcoin monetization program is currently limited to defensive purposes such as paying dividends and interest, according to the report.

Active capital management would require a selling discipline that allows the company to realize shareholder value at cycle peaks and build excess cash for reaccumulation in downturns, Moreno wrote.