In a crisis, Strategy stacks dollars

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Under executive chair Michael Saylor, Strategy (née MicroStrategy), the software firm turned bitcoin treasury vehicle, has often felt like corporate finance’s version of reality TV: loud, lurid and addictively compelling. Since the company’s pivot to bitcoin accumulation in August 2020, it has been almost impossible to look away, and as the stock price soared over twentyfold, the audience only grew in size and passion.

Lately, however, investors seem to be reaching for the remote.

At its height in late 2024, the formula worked like magic. Saylor’s prolific online activity — complete with AI-generated posts and quasi-messianic claims about bitcoin’s civilisational role — fuelled a self-reinforcing feedback loop that seemed almost too good to be true. Bitcoin went up, and in turn Strategy’s stock went up. A higher stock price meant the company could issue more shares at a massive premium to net asset value and buy more bitcoin. Those purchases pushed bitcoin higher, which lifted the stock again. It felt, for a time, like the company had discovered El Dorado or, as others put it, an “infinite money glitch”.

That magical spell has broken. The shares have fallen about 70 per cent from their November 2024 peak and, more importantly, have lagged bitcoin by an enormous margin. For a company whose central proposition is “amplified bitcoin”, trailing the asset you’re supposed to track and outperform represents a damning indictment. It raises the basic question of what value Strategy adds.

This week sharpened those concerns. Over the weekend, Saylor posted a chart of orange dots — the signature motif for bitcoin purchases — with a teasing question: “What if we start adding green dots?” The post triggered a flurry of speculation, even though it said kinda nothing. On Monday, the company announced it had raised $1.4bn of equity, not to buy bitcoin but to build a reserve to cover dividends on its five classes of preferred stock for the next two years.

This is a stunning narrative twist. After a steep fall in the share price, Strategy decided to raise a huge pool of fiat cash to weather a downturn. Still, you can understand why: the software business barely generates any cash and those preferred shares carry heavy dollar-denominated dividends. Without the raise, Strategy would have had to sell bitcoin it has previously promised to HODL.

The market didn’t take it well, not least because raising money from common stockholders just to pay dividends to preferred stockholders rarely looks good. As MainFT writes:

Strategy said on Monday it had created a $1.44bn “US dollar reserve” to fund its dividends. The reserve was financed by money raised from its share sales, and the Nasdaq-listed company said it aimed to maintain a dollar reserve that would fund “at least 12 months of its dividends”, growing to eventually cover “24 months or more” of payouts.

Shares in Strategy trimmed an intraday decline of as much as 12.2 per cent to close 3.3 per cent lower on Monday. The stock has fallen almost 41 per cent this year as investors have questioned the viability of its business model.

Adding to the unease was the separate news that Strategy’s general counsel — who had been selling large chunks of his own shares in recent months even as the stock tumbled — was retiring. There’s no suggestion of a link between the events, but the timing created an awkward optic for a company already fighting to win back investor trust.

Common shareholders now confront a double squeeze. Every new share issue dilutes their stake, while more of that money goes to covering obligations to preferred shareholders who sit above them in the capital structure. Meanwhile, most of Strategy’s $8bn of convertible bonds are trading out of the money. They now resemble conventional debt with increasingly remote prospects of conversion into equity.

A quirk of Strategy’s approach is that it tends to buy bitcoin aggressively near the highs yet has little capacity to buy during downturns. Last week it acquired just $11.7mn of bitcoin, with nearly all the $1.5bn raised from common stock sales earmarked to support its preferred obligations:

Against this backdrop, Strategy’s investor presentation on December 1 raised eyebrows. Management introduced novel metrics such as “BTC Escape Velocity”, “BTC Cruise Speed”, and “BTC Stall Speed”. The slide deck also included an illustration of a “Digital Credit Vehicle” that looked rudimentary for a listed company.

Strategy’s management keeps rewriting the script. The “21/21” programme, inspired by The Hitchhiker’s Guide to the Galaxy, was originally pitched as a three-year plan to acquire $42bn of bitcoin. The company burned through the $21bn equity component of the shelf registration within four months. Convertible bonds were meant to harness the stock’s wild swings to fund further bitcoin accumulation on advantageous terms. But flooding the market with large convertibles damped that volatility, and the company stopped issuing more, probably because they risked getting stuck with debt it would have to repay from a business that generates almost no cash. The company has made a big show this year of launching five classes of preferred stock but then had to sell them at a large discount to liquidation value that made the dividend commitments extremely costly to service.

All these moves keep Strategy in the headlines but also strain investor patience. What once looked bold and brilliant now appears erratic and chaotic. The gap between rhetoric and results has become difficult to ignore, particularly as the stock price significantly lags the asset it is supposed to track and magnify.

Strategy has turned corporate finance into a grand spectacle, with Saylor as its star. But theatrics don’t pay dividends or debt principal, and the burden ultimately falls on ordinary shareholders. The question for investors is whether there remains any good reason for owning the common stock.