S&P Global Ratings assigned a credit rating to Strategy, giving it a B-. The firm claimed that its weak liquidity and narrow focus could make it fragile to future collapse.
Nonetheless, Strategy’s stock rose today, as Saylor noted that his is the first digital asset treasury (DAT) to attract the S&P’s notice. This marketing technique epitomizes Strategy’s ongoing history of success.
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S&P Rates Strategy’s Credit
Strategy recently slowed down its BTC purchases after a complete pause, but the firm remains determined to keep buying Bitcoin. Michael Saylor even announced a $43.4 million acquisition today, but the company has experienced a setback, as the S&P gave Strategy a B- credit rating, representing low confidence:
“We view Strategy’s high bitcoin concentration, narrow business focus, weak risk-adjusted capitalization, and low US dollar liquidity as weaknesses. These are only partially offset by the company’s strong access to capital markets and prudent management of its capital structure,” the S&P claimed in a press release.
The S&P highlighted a lot of structural factors, both specific to Strategy and applicable to the whole DAT industry, to assign this credit score.
For one thing, the company is under acute pressure from shareholders thanks to stock dilution concerns, and Strategy is juggling diminishing mNAV concerns.
Moreover, other DAT companies are turning away from Strategy’s pioneering tactics. More of these firms are pursuing diversified methods to build crypto stockpiles, even mining the tokens themselves, putting this early leader on the back foot.
Even these tactics, however, are showing their own warning signs. These reasons led the S&P to assign such a low credit rating to Strategy, claiming it’s “unlikely” that this score will rise in the next year.
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The Show Must Go On
Despite this sign of no confidence from the S&P, however, Strategy’s stock actually rose today. Saylor, an outsized personality in the crypto industry with a keen eye for marketing, cast this credit rating as a positive development.
Sure, the agency took a dim view of his company, but Strategy is the first DAT to warrant an official rating from this institution. That special attention already serves as a milestone for the crypto industry:
Crypto economics live and die on community hype, and Strategy’s branding could be an “X factor” that the S&P can’t necessarily incorporate into a credit rating. Even now, new DAT firms are referred to as “MicroStrategies,” showing the original company’s outsized reputation.
In other words, genuine enthusiasm could help paper over these contradictions. Ultimately, though, that doesn’t seem like enough.
TradFi is becoming integrated with the broader crypto industry, but the S&P specifically spurned Strategy. Saylor needs to do more than weather momentary setbacks; he needs to regularly keep competing trends from crashing together.
Eventually, one of these weaknesses could blow up in his face.
