Companies that said they would hold bitcoin for the long term are moving to secure cash to raise funds and repay debt. Japan-based bitcoin reserve and management firm Metaplanet has pursued obtaining a credit rating, sold 10,000 bitcoins and then repurchased 11,000 at a higher price. Strategy is securing cash-like funds worth billions of dollars to prepare for dividend and interest payments. A common challenge for companies is that holding bitcoin requires cash outside bitcoin.

On Oct. 11 (local time), CryptoSlate reported that Metaplanet explained the reasons for the sale and repurchase of bitcoin in an Oct. 5 filing. Proceeds from the sale were 124.7 billion yen, while the repurchase cost was 149.9 billion yen, with the repurchase price about 9.3 percent higher per coin than at the time of the sale. Based on the 10,000 coins sold, the price gap excluding transaction costs and tax effects was about 11.57 billion yen. Metaplanet did not use the sale proceeds to repay borrowings or bonds, and it held 44,000 bitcoins as of end-September. The sale is seen as a step to improve credit assessment and future fundraising conditions rather than to reduce holdings. It has not been confirmed that a credit rating agency demanded the sale or that it actually secured more favorable fundraising terms.

Even if a company holds bitcoin, it cannot be seen as having secured sufficient cash needed for debt repayment. That is because it may have pledged bitcoin as collateral or executives may be reluctant to sell at unfavorable prices. Metaplanet's June financial statements listed 67.49 billion yen in short-term borrowings and 8.0 billion yen in bonds maturing within a year. By contrast, cash and deposits were 1.09 billion yen, and its USDC holdings were 250 million yen. Separate from bitcoin holdings or the ability to raise additional funds, creditors place importance on whether cash can be secured at the time of repayment.

Strategy must also prepare for maturities and early redemption rights. Some bonds maturing in September 2028 could create a cash burden one year earlier depending on investors' redemption rights. Including about $4.9 billion of bonds in 2028 subject to similar redemption rights, the principal for those bonds in 2027 to 2028 totals about $5.91 billion. Whether repayment occurs and its scale will vary depending on investors' exercise of rights, conversions and early buybacks.

Strategy said in an Oct. 5 filing that as of Oct. 4 it held separate reserves of $4.88 billion and additional cash-like funds of $833.4 million. The total was about $5.71 billion. The reserves support preferred stock dividends and bond interest payments, and board approval is required to use them for other purposes. From Sept. 28 to Oct. 4, it spent $142.5 million from the reserves on dividends and interest, used $154.1 million to repurchase preferred stock, and spent $13 million to buy bitcoin. Strategy holds 848,000 bitcoins bought for about $63.97 billion.

A company's fundraising conditions also affect the equity value of existing shareholders. If a share price is higher than the value of assets held, it can increase bitcoin holdings through issuing new shares, but if the share-price premium disappears it must give up more equity to raise the same amount. Metaplanet said in its June results that its market cap-to-net asset value ratio, or mNAV, remained below 1 for a considerable period. The company has generally refrained from discretionary common stock issuance below that level, which led to fundraising that fell short of initial expectations.

Metaplanet is also pursuing a policy to generate returns beyond holding bitcoin by allocating about 85 to 90 percent of assets to bitcoin and 10 to 15 percent to strategic investments. This could include investments in income-generating securities such as preferred shares issued by other bitcoin-holding companies. If investment returns exceed funding costs, it can improve cash flow, but there is also a risk that a bitcoin price decline and a fall in the value of related securities occur at the same time.

Voluntary sales by companies and forced liquidations should be distinguished, and the two companies' filings alone cannot be used to conclude that a forced liquidation is imminent. Still, a strategy of holding bitcoin for the long term can be maintained only if it is backed by securing cash for dividends, interest and debt repayment. Depending on the situation, securing cash or reducing dilution may be more favorable to existing shareholders than buying additional bitcoin.