JPMorgan says bitcoin outlook sees 'encouraging sign' as Strategy boosts cash reserves

Strategy's recently boosted cash reserves and positive flows into bitcoin futures are "encouraging signs" for the bitcoin outlook, even as spot bitcoin exchange-traded fund flows remain volatile, according to JPMorgan analysts.

Spot bitcoin ETF flows have been erratic in recent weeks, with inflows last week followed by outflows this week, the analysts led by managing director Nikolaos Panigirtzoglou said in a Wednesday report. By contrast, flows into leveraged ETFs tied to Strategy have remained steadier and positive over the past seven weeks, the analysts noted.

The analysts said the buying, which they attributed largely to retail investors, has likely supported Strategy's share price and prevented its common stock (MSTR) from trading below the net asset value of its bitcoin holdings.

At the same time, Strategy recently increased its U.S. dollar reserves from $2.55 billion to $3 billion, equivalent to about 20 months of preferred dividend payments.

"This is an encouraging sign for the bitcoin outlook, in our view," the analysts said.

The analysts had previously said Strategy could ease concerns about potentially having to sell bitcoin (BTC) in the future to fund preferred dividend payments by rebuilding enough dollar reserves to cover two to three years of dividends.

The analysts now said it is difficult to determine whether Strategy's cash buildup has directly improved sentiment among bitcoin investors. However, they also found it encouraging that bitcoin futures recorded positive flows this week despite the outflows from spot bitcoin ETFs.

The positive flow momentum was visible in both Chicago Mercantile Exchange bitcoin futures and perpetual futures, which the analysts said tend to be driven more by institutional investors than retail traders.

Notably, last week, the JPMorgan analysts said Strategy is not the main structural threat to bitcoin. Instead, they said a bigger risk would be the growing adoption of blockchain technology through permissioned systems that do not benefit public blockchains and their tokens.

Meanwhile, Strategy remains committed to buying bitcoin over the long term and aims to remain its largest buyer for the foreseeable future, President and CEO Phong Le said earlier this week. "We're not going anywhere," he said.

Le also said Strategy feels "very secure" about its balance sheet and would only begin considering risks associated with its debt if bitcoin fell to around $8,000 to $10,000. He added that Strategy plans to issue more STRC preferred shares once they return to their $100 par value, with the proceeds potentially used to buy bitcoin and further increase its dollar reserves.

Bitcoin is currently trading at around $64,250, down about 1% over the past 24 hours, according to The Block's BTC price page.