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Michael Saylor’s company Strategy, formerly known as MicroStrategy, doesn’t just believe in bitcoin — it has staked its entire future on it. Since pivoting from enterprise software to crypto back in August 2020, it has transformed into a bitcoin investment vehicle, with its shares surging more than 25-fold. But beneath the euphoria lies a capital structure that’s becoming increasingly self-referential.
Strategy’s approach to financing has had three key elements. First, it has issued ever larger amounts of common stock to raise money for buying bitcoin, taking advantage of its shares trading at roughly twice the company’s net asset value (NAV).
Second, it has issued huge sums of convertible bonds, exploiting the high volatility of its own shares to secure phenomenally favourable terms. Initially these convertibles were secured against its bitcoin holdings, but today the outstanding bonds are unsecured, removing the risk of margin calls. If the share price fails to rise enough for the bonds to convert, the company still has to repay the money, but maturities have been pushed out, giving Strategy breathing room (at least until the first investor put in September 2027) even if bitcoin prices drop sharply.
Third, it has issued three classes of perpetual preferred shares — Strike (STRK), Strife (STRF) and Stride (STRD) — with high, discretionary dividends, some of which can be paid in kind.
The logic was simple: raise as much money as possible to buy bitcoin. Strategy is now by far the largest corporate holder of bitcoin anywhere. Yet its latest move may mark a shift.
Earlier this week, Strategy announced a $4.2bn at-the-market offering of Stride. On the surface, it looks like yet another bid to raise cash for more bitcoin purchases. But tucked away in the announcement was a telling clause: proceeds may also be used to pay dividends on other classes of preferred shares, namely Strife and Strike (Alphaville emphasis added):
Strategy intends to use the net proceeds from the ATM Program for general corporate purposes, including the acquisition of bitcoin and for working capital, and may also use the net proceeds for the payment of dividends to holders of its 10.00% Series A Perpetual Strife Preferred Stock, $0.001 par value per share and 8.00% Series A Perpetual Strike Preferred Stock, $0.001 par value per share.
This isn’t a refinancing, where a company swaps expensive capital for cheaper funding. Nor is it a typical dividend recapitalisation, where a company borrows to pay shareholders dividends. A dividend recap usually assumes the business generates enough cash to support more debt. Strategy’s legacy software division doesn’t produce enough free cash flow to cover these preferred dividends, and bitcoin, of course, pays no income.
Instead, this manoeuvre is something different. Strategy is effectively reserving the right to use money from new securities to prop up old ones, reassuring investors that it can keep issuing fresh paper to cover dividend payments. This in turn is meant to give them confidence to buy the future rounds of preferred shares.
The whole structure rests on two pillars. First, Strategy’s market capitalisation consistently trades above the value of its bitcoin holdings — a rare occurrence in what’s supposed to be an efficient market. The best explanation for the NAV premium is that Saylor commands a loyal following and his bitcoin strategy has a powerful narrative momentum. Second, Strategy must maintain perpetual access to capital markets. It needs to keep finding new buyers for its paper, whether common stock, convertible bonds, or preferred shares.
Dependence on these two factors carries obvious risks. The company has no hedge, no diversified income, and no plan B. Its fate hinges on the assumption that capital will always be available and bitcoin’s price will either rise or, at the very least, stay elevated. A prolonged downturn or shut-off from funding could force the unthinkable: selling bitcoin to meet dividend payments. This would represent an existential crisis for a “buy and HODL” maximalist.
For now, the music plays on. Bitcoin’s rally boosts both Strategy’s NAV and the stock’s premium to NAV, and investors continue to clamour for Saylor’s paper. But each new layer of financial engineering makes the structure shakier. Strategy has proven its approach pays off in a bull market. The question is whether it can withstand the storm when the tide inevitably turns.
