Last week, Michael Saylor Strategy purchased 22,337 Bitcoins for approximately $1.57 billion using a funding mix centered on floating rate perpetual preferred stock STRC.
The March 16 announcement showed that the company paid an average of $70,194 per Bitcoin at the time of purchase. The acquisition boosts Strategy’s holdings to 761,068 Bitcoins (equivalent to approximately $56.5 billion at current market value), making it the fifth largest single-week acquisition in the company’s history.
The funding structure conveyed a more important signal. Strategy sold 11.9 million shares of STRC stock last week for proceeds of about $1.18 billion, or about 75% of the cash it used for the purchase. An additional $396 million was obtained from the sale of 2.8 million shares of MSTR Class A common stock.
For most of the past few years, investors have been able to read strategic models primarily through MSTR. The company sold its common stock to a market that valued it more highly than Bitcoin on its balance sheet, converting that capital into more Bitcoin.
STRC is expanding its model by incorporating a different buyer base, primarily income-focused investors seeking yield and principal stability, as well as high-beta Bitcoin exposure. The preferred stock is structured to pay an 11.50% annual dividend, monthly cash distributions, and trade at a par value of nearly $100.
Therefore, the company has expanded the pool of funds that can be used to purchase Bitcoin. This shift is also evident in recent transactions where preferred stock provided the bulk of the funding.
Remarkably, the previous week also pointed in the same direction. The strategy used a similar combination of preferred and regular issuance to purchase 17,994 Bitcoins for $1.28 billion.
The company invested nearly $2.85 billion in two weeks, most of which was funded by STRC. This pace has thus transformed the STRC from a support vehicle to a major funding vehicle.
STRC becomes a large part of the machine
The speed of STRC’s growth helps explain why the strategy conversation has changed.
Strategy reported on February 1 that STRC’s notional principal balance was $3.4 billion, according to the company’s capital tracker. By March 16, that amount had increased to about $5.02 billion.
The nearly 50% increase over the past six weeks has allowed Strategy to acquire a larger preferred base at a time when it was accelerating its Bitcoin purchases.
Thaler highlighted the momentum in a post on X, saying STRC is now the most liquid preferred stock by volume, ahead of offerings from Kohlberg Kravis Roberts & Co. and Boeing Co.
Notably, Strategy also announced a 3.0% increase in Bitcoin per share in the first two weeks of March due to increased demand for STRC.
Bitcoin analyst Adam Livingston argued that Bitcoin’s expansion could reshape Strategy’s buying power.
According to him:
“STRC’s growth will be phenomenal…the strategy could add $40 billion in Bitcoin this year. Indeed.”
Livingstone’s estimates were based on conservative scenarios. He noted that Strategy raised $1.557 billion from STRC in the past two weeks, and said that even if the company maintained that pace for only 20 of the remaining 41 weeks of the year, it would be able to raise about $16 billion from STRC alone.
Subsequently, his framework added the potential for priority program growth, the extension of the STRC issuance period, and the potential for additional MSTR sales.
Livingstone’s estimates are more of an outsider’s view than company guidance, but its recent funding structure helps explain why Livingstone has gained momentum.
Strategy is currently selling common stock for momentum-oriented capital and preferred stock for yield-seeking capital, exchanging both for Bitcoin. Expanding the preferred channel means the company can fund additional purchases without relying as much on common issuance each time it expands its financial line.
Rise towards 1 million Bitcoins
The accelerated funding mechanism puts Strategy on track to reach 1 million Bitcoins by the end of the year.
From February 1st to March 16th, the company added 47,566 Bitcoins, for an average of approximately 1,081 Bitcoins per day.
To reach 1 million Bitcoins by December 31st, Strategy will need an additional 238,932 Bitcoins, or approximately 824 Bitcoins per day for the rest of the year. The required pace is lower than the pace the company has maintained since early February.
Meanwhile, the cost of that goal remains high. If the price of Bitcoin is around $73,369, you would need around $17.53 billion to buy 238,932 Bitcoin. At $85,000 per Bitcoin, that amount increases to approximately $20.31 billion.
Once the 1 million coins threshold is reached, MicroStrategy will control 4.76% of Bitcoin’s maximum supply of 21 million coins, up from its current share of 3.62%.
After the 2024 halving event, miners are expected to produce only about 130,500 new Bitcoins from mid-March until the end of the year.
To reach its goal, Strategy would need to absorb 183% of all newly mined coins during this period, which would require significant purchases from the existing secondary market.
Meanwhile, BTC Markets analyst Rachel Lucas said the current pace could affect the 1 million mark.
He said that at Strategy’s recent daily acquisition rate, the company could surpass the estimated 1.1 million bitcoins attributed to Bitcoin pseudonym creator Satoshi Nakamoto as early as March 2027.
In the near term, the company’s pace also puts it on track to overtake the largest Bitcoin fund, BlackRock’s iShares Bitcoin Trust, which held approximately 571,700 Bitcoins at the time of writing.
If current momentum continues, Strategy’s lead over other corporate shareholders and large fund vehicles will continue to grow.
Therefore, the basis for 1 million Bitcoins rests on large purchases, at least once a week. It depends on the strategy’s ability to continue raising capital at a rate that supports continued purchases into markets with limited incremental supply.
Premium and payment pressures remain central
On the other hand, accumulation strategies face certain structural and financial vulnerabilities. This model relies entirely on the market valuing the stocks of Bitcoin-focused companies at a premium compared to the underlying BTC on their balance sheets.
According to Strategy data, its mNAV is 1.18. This premium supports the issuance of Bitcoins per share on ever-increasing terms.
A sharp compression of this premium, which could be caused by falling Bitcoin prices, rising interest rates, or changes in investor sentiment, would severely limit the company’s ability to continue purchasing at its current size.
Additionally, our reliance on STRC results in significant cash obligations. With a notional principal balance of $5.02 billion and an annual interest rate of 11.50%, the preferred stock requires cash dividends of approximately $578 million annually, or $48 million per month.
Notably, Strategy disclosed $2.25 billion in reserves to be used for preferred dividends and debt interest.
Still, Arca Chief Investment Officer Jeff Dorman highlighted long-term solvency concerns related to the company’s interest expense.
Dorman said the interest coverage ratio is the ultimate determinant of long-term solvency, noting that the company has zero earnings before interest and taxes and has no interest coverage.
He also highlighted the growing annual burden of interest and dividend payments, which currently exceed $1 billion, suggesting that the company will eventually run out of options to meet these obligations.
With this in mind, Dorman outlined some possible long-term outcomes for the company. The first scenario involves a continued rise in the price of Bitcoin, allowing Strategy to issue shares in perpetuity and survive. The second path involves the company suspending dividend payments, a move that Dorman believes is very logical and certain to end the current accumulation cycle.
In a third scenario, Strategy could sell some of its Bitcoin each year to cover the payments. Dorman argued that this action would immediately destroy the investment narrative surrounding the stock.
However, a fourth possibility is for the company to use Bitcoin to acquire a cash flow business to pay off debt and become a BTC-denominated holding company.
Meanwhile, Dorman also mentioned the possibility of a default if the price of Bitcoin crashes below the value of the company’s assets, which he estimates at around $20,000 per Bitcoin.
Finally, he suggested that Bitcoin could evolve into a highly productive asset, allowing Strategy to earn yield through lending and selling calls to cover expenses.
Dorman characterized the current structure as an elaborate arrangement with significant potential vulnerabilities. he said:
“As I have always said, there are no debt covenants that force MSTR to sell BTC (forced sales are not a risk)… but voluntarily selling to cover interest and dividend payments is a real risk. And if you believe he will never do that, you need to realize that he will eventually suspend dividends.”
He observed that four different stakeholder groups, including BTC holders, MSTR debt holders, the company’s preferred and common shareholders, are now comfortable with their positions.
However, Dorman concluded that these four groups have contradictory basic assumptions.
He says that while these classes can coexist in the short term, they have mutually exclusive views on a company’s ultimate financial path, creating fundamental long-term risks to the company’s structure.
(Tag translation) Bitcoin
