Is the strategy (Mstr) in trouble?
Directed by Executive President Michael Saylor, the firm previously known as Microstrategy has aspired to 506,137 Bitcoin (BTC), currently with a value of approximately $ 44 billion at the current BTC price about $ 87,000, within approximately five years. For the casual observer, the company seems to have a magical and unlimited group of funds to turn to buy more bitcoin. But the strategy acquired a considerable part of its stash issuing billions of dollars in capital and convertible notes (debt values that can become capital into special conditions), and more recently through the issuance of preferred shares, a type of capital that provides dividends to investors.
However, the price of Bitcoin has reduced approximately 20% since it reached a maximum of $ 109,000 two months ago. And although such changes in prices are far from being unusual, recently aggressive purchases of Saylor and the average acquisition price of Team’s strategy has increased to $ 66,000. The company is really just a more moderate price at the price of being red at its purchases.
What the question raises: Could all the financial magic of the strategy end the support of the company if Bitcoin continues to rise below?
“It is very unlikely to be in a scenario in which [Strategy] He has to liquidate a lot of bitcoin because it’s called margin, “said Quinn Thompson, founder of the Crypto Lekker Capital Coverage Fund, Coindesk in an interview.” For the most part, it is very likely that the debt can be refinanced for convertible notes. And then [the firm] It began to issue this perpetual preferred action, which never has to be paid. “
In other words, there are not only very few possibilities that the strategy can suffer the type of explosion that was shook over cryptographic companies and projects in 2022 (such as genesis or three capital arrows), but the company has even refrained from publishing its Bitcoins holdings as a guarantee for loans, with the exception of a loan taken from Silvergate, which was paid in 2023.
Even so, that does not necessarily mean that it is a blue sky ahead for MSTR investors, because in several scenarios, Saylor could be forced to issue more capital than the market can handle to maintain the course.
“If you are not paying dividends with the cash flow of the strategy, it will issue more actions and destroy the price of the shares. But it is not different from what you are already doing. Every time the retail trade offers it, it destroys the price of the shares by issuing more actions. In the future, it will have to do that, and the flows could not go to Bitcoin. They could go to these debts, and the price of the actions will go.
Saylor’s equilibrium act
The strategy currently uses three different methods to raise capital: it can issue capital, convertible notes or preferred shares.
Capital issuance means that the strategy creates new MSTR shares, sells them in the market and uses income to buy Bitcoin. Naturally, that creates sales pressure on MSTR and can potentially push the stock down.
The convertible notes have allowed the strategy to raise funds quickly without diluting the MSTR stock. In general, investors like these notes because they offer solid yield, they benefit whether the shares increase and can generally be exchanged in cash for an amount equal to the original investment in addition to interest payments. However, the tremendous volatility of the convertible notes of the strategy has allowed the company to broadcast them mainly at a zero percent interest rate and still meet the high demand of the sophisticated market participants, who have made a bank trade that volatility.
Finally, the strategy has begun to implement preferred actions. These are instruments that tend to attract investors seeking less volatility and more predictable yields through dividends. There are currently two offers: Strk, which offers an annual yield of 8%; and Strf, which pays 10% annualized.
But why does the strategy emit all these different types of investment vehicles? The idea is to create a demand for strategy for all types of investors that may have different tolerances to risk, Jeffrey Park, head of Crypto Asset Management Bitwise Alfa Strategies, told Coindesk in an interview.
“Convertible bond investors and common capital investors were generally aligned in the sense that both were volatility search structures,” Park said. “The preferred shares are different. In reality, they are favored by investors who wish to minimize volatility at a stable, reliable and high coupon that consider the credit risk is worth it.”
“The capital structure of the strategy is almost like a rocker in a patio of recreation,” Park added. “Common shareholders and converts are on one side, the holders of preferred shares are on the other side. As the feeling changes, the weights move, and inclines the value between these values. But it does not matter how the balancin moves, its total weight is the business value of the strategy, it remains the same. It is only a redistribution of people perceived by the perceived value of people through people of the company in the balance of the company “.
Risks
Even so, the strategy is now in a situation in which you must pay for 8% dividends in Strk, 10% dividends in Strf and a combination of 0.4% interest rate in its convertible bonds.
With the strategy software business that provides very little cash flow, finding funds to pay for all these dividends could be complicated.
It is likely that the company must continue to issue MSTR shares to pay the interests it owes, said Thompson. “It will derive the price of the action. On the most extreme stage, the shares could trade with a discount [from its bitcoin holdings]because I would have to issue actions to pay interest and cover cash flow. “
“The really draconian scenario would be for the discount to be as wide, as 20% or 30%, such as Groyscale’s GBTC [prior to its conversion into an ETF]That the shareholders tear and tell him to recept the actions and close the discount, “Thompson added.” At this time, it is adding the value of the shareholders by selling the shares at a high price and buying Bitcoin, but in the future the opposite could be true, where the best way to add the value of the shareholders would be to sell the bitcoin and buy the shares. But that is quite far. “
Saylor lost vote power control over the company in 2024 due to the continuous issuance of Mstr’s shares, which means that the previous scenario could occur theoretically, especially if activist investors decided to get involved.
Another potential risk for MSTR holders is that the Bolsa (ETF) funds of 2x Long Exchange issued by T-Rex and Defiance, MSTX and MSTU have seen a strangely persistent demand despite the reduction of actions. Every time investors wish to obtain or increase their exposure to these ETFs, issuers have to buy twice the MSTR shares. The popularity of these ETF has helped create a constant purchase pressure for MSTR; Until now, they have accumulated more than $ 3 billion in exposure to Mstr.
The problem is that music could stop one day. And if these ETF begin to sell their MSTR shares, the reaction of the price of the shares could be violent.
“I don’t know where the endless capital comes from to buy the dip. These ETFs have been erased. They are huge,” Thompson said. “I mean, this is not a structural ascent in the demand curve with which you must count. It is not something that you really have to bake in your 10 -year predictions of the price of Bitcoin, but whenever it is existing, it is important for Bitcoin. So it continually surprises me.”
