Strategy Eyes Bitcoin Lending Partnerships With Big Banks

Strategy CEO Phong Le signaled the corporate could finally lend a part of its bitcoin holdings as soon as massive US banks totally enter the market with institutional-grade custody and lending infrastructure, whereas stressing that the core technique stays to “purchase and maintain bitcoin.”

Building A Dollar Buffer Around A Bitcoin Core

Speaking on Bloomberg Crypto on December 2, Le outlined why the corporate constructed a $1.4 billion greenback reserve to fund dividends and curiosity, at the same time as BTC worth has endured a pointy drawdown from its early-October high close to $125,000 to a brutal November that noticed an extra 17% decline earlier than a rebound above $92,000.

Le framed Strategy’s stability sheet as a barbell between long-term BTC publicity and short-term money obligations: “We have long-term technique, which is to purchase and maintain bitcoin. That is our primary treasury reserve asset. And we’ve short-term greenback obligations created due to the dividends we’ve on our most popular notes.”

To avoid being forced to sell BTC when the corporate’s fairness trades near or under the worth of its underlying holdings, Strategy created a devoted US greenback reserve: “If we wish to actually create a bulletproof stability sheet, let’s have the worldwide reserve digital asset, bitcoin, for the long run, and the worldwide reserve digital foreign money for the brief time period. That is why I created the US greenback reserve, to pay down dividends within the brief time period any case that we would have liked.”

Le mentioned Strategy not too long ago issued fairness “in 8.5 days” to pre-fund roughly 21 months of most popular dividends, and now goals to keep up a money buffer equal to “two to 3 years of dividends,” a coverage he expects to keep up for “the subsequent 5 or 10 years” earlier than reassessing because the capital construction evolves.

He defended the corporate’s insistence on persevering with the dividend, arguing that suspensions “create worry, uncertainty, doubt” and hurt fairness holders: “Our goal is to pay the dividend into perpetuity. Never say by no means, however I believe preserving the cost of the dividend […] is the best factor for the brief time period. It can be essential for the bitcoin asset class.”

At the identical time, he sought to defuse considerations that Strategy is overleveraged or at imminent danger of promoting BTC. Le mentioned Strategy has “12% leverage” on its debt alone and “27% leverage” together with preferreds, versus “60% to 80%” at a typical US public firm. If the corporate continues to develop its money reserves to cowl a number of years of dividends, he mentioned, “actually [we’re] speaking in regards to the finish of 2028” earlier than any sensible situation the place promoting bitcoin to fund dividends may be thought-about.

Le additionally pushed back against MSCI’s suggestion that “digital asset treasury” corporations could resemble funds and may very well be excluded from indices. He argued Strategy is a “totally built-in, vertically built-in bitcoin working firm” that buys bitcoin, points securities, creates merchandise, generates working earnings and employs full company workers, and due to this fact ought to commerce at a premium reflecting its potential “to develop our treasury and our working earnings over time.”

From HODL To Considering Bitcoin Lending

On lending, Le mentioned Strategy has intentionally saved its enterprise “quite simple” thus far: “We purchase and we maintain bitcoin.”
However, that will change as conventional finance ramps up BTC choices: “Over the course of the subsequent 12 months […] massive, actual banks will provide custody, lending service and staking and in any other case. I believe after they enter that house and after they have completely different counterparties, it’s one thing we might think about and be captivated with.”

Le added that Strategy has already had “numerous constructive discussions” with massive US banks exploring bitcoin custody, trade and lending and is “excited to associate with them” as soon as these platforms are totally in place.

At press time, Bitcoin traded at $92,997.