Dissecting Strategy's dangerous "capital cycle"
Strategy is actively enhancing its capital reserves. The latest report shows that the company has created a cash reserve of $1.44 billion and expanded its Bitcoin holdings to 650,000 BTC, following a recent purchase of 130 Bitcoins. However, despite the company's progress in increasing reserves and dividends, investors remain skeptical about the sustainability of its capital chain model.
Bitcoin Holdings Reach 650,000; Cash Reserves Successfully Increased
Strategy announced that it recently purchased 130 Bitcoins for approximately $11.7 million, with an average cost of $89,960 per Bitcoin, raising its total Bitcoin investment to $48.38 billion, at an average transaction price of $74,436 per Bitcoin. The company stated that this cash reserve will support its preferred stock dividend payments and debt interest.
Strategy's Dangerous "Capital Cycle"
Strategy raised funds by selling Class A common shares through its market offering plan to establish this reserve. The company’s management stated that the current plan is to ensure sufficient cash to meet payment obligations for at least 12 months, with the goal, depending on market conditions and liquidity needs, potentially increasing the buffer amount to 24 months or more.
According to company data, the current cash reserves complement its Bitcoin reserves, which make up approximately 3.1% of the ultimate supply of 21 million BTC. Management emphasized that this structure is designed to allow the company to flexibly meet fixed payment demands without selling Bitcoins, while viewing Bitcoin as a long-term treasury asset. Strategy stated that the size and conditions of the reserves will be adjusted based on changes in market capital costs, Bitcoin prices, and capital market environments.
Critics: STRC Dividend Raised to 10.75%
Michael Saylor posted on social media platform X that the dividend yield for Strategy’s STRC preferred stock has reached 10.75% after "another rate hike last night." This adjustment results from the recent restructuring of the company's capital.
Subsequently, long-time Bitcoin critic Peter Schiff condemned this, questioning Strategy’s business model. He believes this signals that the "end has already begun" for Strategy, pointing out that Saylor’s sale of shares was not to buy more Bitcoins, but to raise dollars to meet his interest and dividend payment requirements. He described the stock as "collapsed" and accused the business model of being a scam, claiming that Saylor misled investors.
In a follow-up post, Peter Schiff indicated that Strategy is now raising funds by selling shares and using those funds to purchase U.S. Treasuries, which yield about 4%, while needing to pay interest rates between 8% and 10% on its own debts and preferred stock. He questioned whether investors can see this as a viable strategy or merely as leveraging to speculate on Bitcoin.
Strategy's Stock Price Discount Greater than Its Bitcoin Holdings
Since October 6, Strategy has fallen by over half. The company's current holdings of 650,000 BTC are worth about $55 billion, while its stock trading price is below the nominal value of its Bitcoin reserves by about $10 billion.
After deducting the reported $8.2 billion in debt, the company's net Bitcoin holdings amount to about $46.8 billion. This figure still exceeds the company’s market value of approximately $1.8 billion, and does not account for any cash on its balance sheet. The Kobeissi Letter noted that this gap illustrates how significantly investors have reassessed the stock, questioning whether Executive Chairman Michael Saylor can continue to increase the company’s Bitcoin holdings under the current circumstances.
