CryptoQuant advises Strategy to stop buying Bitcoin

Research firm CryptoQuant advises Strategy to temporarily stop buying Bitcoin and first focus on restoring its cash reserves. The company’s dividend obligations are rising quickly while available liquidity is shrinking. That is according to Julio Moreno, head of research at CryptoQuant.

Bitcoin is available at OKX and Bybit.

Dividend obligations rising fast

Strategy continues to issue new STRC preferred stock and then use the proceeds to buy Bitcoin. That sounds like an aggressive growth strategy, but the downside is becoming increasingly visible. Annual dividend obligations are rising from about $300 million at the start of this year to approximately $1.2 billion now. At the same time, cash reserves have fallen by 38%, from a peak of $2.2 billion to currently around $1.4 billion.

As a result, dividend coverage is under significant pressure. Where it previously stood at more than seven years, it has now dropped to just 14 months, a level that CryptoQuant describes as near a record low. Strategy recently bought 520 Bitcoin after a share sale, but according to Moreno the financial room for such moves is increasingly limited.

More discipline and a systematic approach

Moreno argues that Strategy should pause Bitcoin purchases until cash reserves and dividend coverage return to healthy levels. He also advocates for a more structured and systematic framework for future Bitcoin purchases, rather than the current approach of repeatedly issuing new shares or debt instruments.

He also makes a notable proposal: sell a portion of the Bitcoin holdings during future bull markets to take profits, reduce leverage, and replenish the cash position. That stands in stark contrast to the strategy always championed by CEO Michael Saylor, namely never selling Bitcoin. The Bitcoin price is currently around $62K, up 0.5% in the past 24 hours. The price has been moving sideways around $62.000 for some time, which only increases the urgency of strong liquidity management for Strategy.