JPMorgan said Strategy’s practice of funding preferred dividend payments through selective bitcoin sales introduces avoidable uncertainty into crypto markets and should instead be replaced with equity issuance to strengthen cash reserves.

The Wall Street bank (JPM) argued that Strategy’s (MSTR) decision to allow occasional bitcoin BTC $61,877.79 sales to meet dividend obligations has created unnecessary “two-way” risk, increasing volatility and reducing market predictability.

Earlier this week, the company formalized a policy permitting bitcoin sales when required to fund preferred dividends, alongside authorizations for share buybacks and preferred stock repurchases. It also set a liquidity target equal to 12 months of dividend and interest obligations, with its current $2.55 billion cash reserve covering about 17 months.

JPMorgan analysts, led by Nikolaos Panigirtzoglou, said a more conservative buffer of 24–36 months would be more appropriate. They suggested this could be achieved through additional common equity issuance to increase cash holdings, even if it results in the stock trading below net asset value.

Strategy remains one of the largest corporate holders of bitcoin, with 847,363 BTC on its balance sheet. Its large-scale accumulation has made it a major source of institutional demand, meaning even limited selling could affect liquidity, pricing, and sentiment by introducing a new supply channel into the market.

At the same time, demand from U.S. spot bitcoin ETFs—the primary institutional inflow driver since their 2024 launch—has weakened sharply, with $4 billion in net outflows in June after a sustained redemption streak pushed year-to-date flows into negative territory.

JPMorgan also pointed out that bitcoin came under pressure in late May and early June after Strategy disclosed it sold 32 BTC between May 26 and May 31 to fund dividend payments. That selling added to broader weakness tied to shifting Federal Reserve rate expectations, which also weighed on bitcoin and gold.

The bank emphasized Strategy’s outsized influence on the market, estimating it has purchased about $13.7 billion worth of bitcoin year-to-date—roughly 70% of total net digital asset inflows—and now holds around 4% of total BTC supply.

Given its scale, JPMorgan said Strategy’s dual role as both a large buyer and occasional seller creates unnecessary “two-way flow” risk that could amplify volatility. It also warned that higher volatility may increase capital-raising costs for future bitcoin acquisitions.

While current bearish sentiment could eventually prove a contrarian bullish signal, JPMorgan said a stronger second half would likely depend on Strategy expanding its cash buffers and progress in U.S. crypto market structure legislation.