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Michael Saylor has always conveyed confidence and conviction. The leveraged bitcoin vehicle Strategy (formerly MicroStrategy) has had its detractors and doubters, but the management have never wavered in its faith in its project, even if prices gyrate wildly. “Volatility,” wrote executive chair Saylor in February, “is Satoshi’s gift to the faithful.”
Yet over the past several months, management’s actions have started to tell a somewhat different story that contradicts the bravado that Saylor and his team project on social media, podcasts and the conference circuit.
If you judge Strategy by recent actions and not words, you get the distinct impression that management have focused increasingly on managing the liquidity demands of the company’s capital structure rather than showing absolute commitment to bitcoin accumulation.
Four developments stand out.
First, last December Strategy sold common stock to build a cash reserve that reached $2.25bn by early 2026, in effect stacking dollars rather than sats.
This issuance is difficult to reconcile with Strategy’s “all-in” ethos. The company dumped equity at roughly 70 per cent below the highs to raise funds to service the company’s ever growing preferred-stock dividend obligations.
Issuing equity at depressed prices to hoard the proceeds is not what you’d expect from a visionary founder who has trashed cash and proclaimed bitcoin as the “apex commodity, technology, property, money, & ETF asset”. The cash reserve today stands at around $900mn which covers about 7-8 months of dividends, and the market is asking how it will be replenished.
Second, the company repurchased around half of its $3bn 2029 zero-coupon convertible bond issue.
At first glance, this is a bizarre liability to retire, even at an eight per cent discount to par. Zero-cost debt is pretty darn attractive, especially for a junk-rated credit like Strategy. Sure, with a conversion price of $672, the convertible bond was wayyy out of the money. However, because the investor put option could not be exercised until June 2028, the instrument posed no refinancing risk for at least two years.
So why buy it back now?
One reason is that management is keen to reduce its reliance on future capital-market access. Unlike most companies, Strategy generates no operating cash flow from which it can meet its obligations. Preferred stock are far more expensive to service than the convertible, but their payments can be deferred and the securities never mature. Strategy is, in effect, swapping cheap financing for more flexible financing, prioritising survival over economics. It wants to minimise the risk of outright default.
The third development was puny in financial terms but had massive symbolism.
Earlier this month, Strategy disclosed that it had sold 32 bitcoins to raise $2.5mn. The amount was immaterial, but the move unnerved markets because it ran contrary to Strategy’s “HODL” mantra. “Sell a kidney if you must, but keep the bitcoin,” Saylor famously tweeted last year.
The market didn’t like the volte-face, with the common stock tumbling nearly 20 per cent in the following five sessions. Admittedly, Saylor had flagged on the first-quarter earnings call in early May that the company might sell a small amount of bitcoin to “inoculate the market” for future disposals. But for investors the actual sale presages future bitcoin disposals.
The token (pun intended) sale of tokens suggests management doesn’t believe that capital markets will always enable it to fund its obligations. It’s a backhanded acknowledgment that in a sufficiently adverse environment, the bitcoin treasury chest may have to become the source of fiat liquidity.
Fourth, the price decline of Strategy’s “Stretch” (STRC) preferred stock suggests the costs of sustaining the current capital structure is rising fast. STRC was aggressively pitched as a stable income instrument, with CNBC reporting Saylor as having presented it as high-yielding money market fund alternative. According to Strategy, “STRC’s dividend rate is adjusted monthly to encourage trading around STRC’s $100 par value and to help strip away price volatility.”
Uh oh . . .
STRC has broken par and touched as low as $91 last week. Strategy has already had to juice the dividend from 9 per cent at IPO to 11.5 per cent today, and management now faces a brutal dilemma: either jack the dividend up even higher to push the shares back to par, or renege on the de facto public promise and leave mostly retail holders with substantial losses in an instrument explicitly highlighted as low-volatility.
Against this backdrop, it’s worth noting that management have a mixed record as stewards of shareholder capital. Since pivoting to bitcoin in August 2020, Strategy has bought at an average purchase price of roughly $76,000 per bitcoin. With bitcoin currently trading around $62,000, the company has an unrealised loss of roughly $11.5bn.
Does all this mean that management have stopped believing in bitcoin or just in the financial apparatus of Strategy’s capital stack? It’s hard to say. On a recent podcast Saylor said bitcoin would be trading at $40-50,000 if it weren’t for Strategy’s massive purchases. The implication is that the company has been propping up the asset it has invested in.
Strategy’s premium valuation has always rested on the assumption that it could issue securities, buy more bitcoin, and so sustain the premium that made the process possible in the first place. The company’s online followers may still believe that flywheel is self-reinforcing. The more interesting question is whether management still does.
