JPMorgan Flags "Two-Way Risk" for Bitcoin as Strategy's New Sales Policy Raises Market Concerns

JPMorgan experts have issued their latest warning concerning the crypto market. Strategy launched a plan that gives it more flexibility to sell Bitcoin when needed. This decision has raised a lot of eyebrows since it was shared.

According to Bloomberg, the bank said that the policy change could create additional volatility for the crypto market. JPMorgan said this would bring what it described as a "two-way risk" for markets. This means investors must now consider the possibility that the company could become a major buyer or a seller of BTC.

The warning comes at a time when the crypto market is already facing a downward spiral, with Bitcoin hitting around $58,000 earlier in the week before recovering above $61,500.

Strategy pivots from its usual playbook

Michael Saylor’s company built its reputation in the crypto space by raising money to buy Bitcoin for the long term. In fact, Saylor repeatedly said that his firm would never sell BTC even if the shares drop.

According to JPMorgan, the company has bought about $8.2 billion worth of Bitcoin this year alone. This accounts for about 70% of its net digital asset inflows during the period.

Strategy currently holds around 4.2% of the coin’s total supply. Hence, further sales could be devastating for the crypto market.

However, things changed when the company shared that it would sell up to $1.25 billion worth of the coin. The proceeds would be used to boost its balance sheet, increase cash reserves, fund dividend payments, repurchase shares, or support other financial obligations.

This comes amid the pressure on the company's financing model. MSTR stock has fallen over the past year. Also, its preferred stock, STRC, is trading significantly below its target value.

Notably, Strategy boosted its cash reserve to $2.25 billion and said that, combined with the authorized Bitcoin sales plan, it would have more than two years of coverage for future payment obligations.

JPMorgan warns on market impact

JPMorgan analysts, led by Nikolaos Panigirtzoglou, believe this plan is very risky for the market at large.  The bank said that maintaining its cash reserves would be a better solution. 

"With the company's valuation inextricably linked to the price of Bitcoin, more uncertainty and volatility in crypto markets could have a negative impact on the company's valuation,” he said.

According to the analysts, the company needs to build enough liquidity to cover 24 and 36 months of dividend and interest payments without having to sell its coins.

The debate started when the firm sold 32 BTC worth $2.5 million between May 26 and May 31. In another panel session, Saylor said Strategy would sell more BTC if it had to, raising the level of concern in the market.

JPMorgan also noted that some smaller treasury companies are doing the same as Strategy, using public markets to raise money and buy coins. For context,  Bitcoin miner Riot Platforms moved 500 BTC to another wallet, hinting at a potential sale. This follows a series of similar moves.

However, the bank still said that the Strategy’s plan may be the financially sensible thing to do. They added that this could help strengthen its balance sheet over the long term.