Michael Saylor's company Strategy is once again in the market's spotlight after announcing plans to sell up to $1.25 billion in Bitcoin.
The move has raised questions about the sustainability of the company that makes crypto assets its primary storage, known as the Digital Asset Treasury (DAT).
In addition to approving the sale of Bitcoin, Strategy is also implementing a share buyback program.
So far this year, the company has sold about $218 million in Bitcoin to pay dividends to shareholders and replenish cash reserves in US dollars.
While the announcement provided some relief to investors and helped Strategy's share price temporarily rise, the move is seen as showing that the company is now increasingly relying on selling crypto assets to strengthen its financial position.
Digital Asset Treasury is a listed company that buys and holds crypto assets such as Bitcoin or Ethereum as the company's primary assets.
This model allows investors to gain exposure to the crypto market through the purchase of shares without having to own Bitcoin directly.
This business model has grown rapidly over the past year after positive sentiment towards crypto-friendly policies in the United States.
However, the fall in Bitcoin prices has begun to put pressure on these companies.
Since the beginning of the year, Bitcoin has fallen by up to 33% due to geopolitical tensions, rising global oil prices and concerns about the direction of the US Federal Reserve's (Fed) monetary policy.
This fall has also caused the value of the company's asset holdings to decline and made it difficult to obtain new financing.
The market value of Digital Asset Treasury companies has also declined after the overall crypto market failed to maintain the upward momentum achieved last year.
Most companies have not yet managed to return to the value level before the market crash.
Another worrying indicator is that most Digital Asset Treasury companies are now trading below the value of their crypto assets, or known as mNAV below 1.
This situation means that the market values the company lower than the actual value of their Bitcoin holdings.
This situation has made it difficult for companies to raise new capital as investors have become increasingly cautious about the industry's prospects.
In fact, Strategy itself recorded an mNAV below 1 for the first time last month.
At the same time, the trading volume of Digital Asset Treasury companies also showed a downward trend.
Trading activity slowed down after investors reduced their holdings of risky assets following expectations of tighter monetary policy in the United States.
Despite selling some of its Bitcoin holdings, Strategy still remains the public company with the largest Bitcoin holdings in the world.
Several other companies including BitMine Immersion Technologies and Nakamoto Inc. also sold some of their crypto assets to strengthen their financial positions.
