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Six months have elapsed since the release of my initial analysis on the entity previously known as MicroStrategy, now simply referred to as Strategy. Apart from a rebranding, the firm has since expanded its portfolio of financial offerings, gathered additional bitcoin, and inspired a diverse range of companies mimicking Michael Saylor’s strategies. Bitcoin treasury companies appear to be ubiquitous.
In need of an update, we will now assess if these bitcoin treasury companies’ activities align with the forecasts made in the initial analysis, and once more endeavor to determine the ultimate direction of all this.
A Reason for Concern
In December of the previous year, the firm seemed almost unbeatable: With its bitcoin yield KPI growing at an astonishing annual rate exceeding 60%, optimism prevailed. It was no surprise then that many of the arguments meticulously presented in the report issued at that time were either mocked, dismissed, or faced fierce challenges to short the stock. The stock price, whether measured in dollars or bitcoin, remains stagnant compared to those days and provides little in the way of validation.
Sadly, very few grasped or even reached the most crucial finding of my December report, which pertains to the origin of the bitcoin yield. Therefore, we will reiterate what is flawed with the company’s metric, and why this should raise concern for any serious investor.
The bitcoin yield — the rise in bitcoin per share — reaching older shareholders originates from the assets of new shareholders. The new shareholders, many purchasing shares in the hope of attaining a high bitcoin yield for themselves, contribute to the bitcoin yield either directly by acquiring Strategy common shares produced in the company’s record-breaking ATM (“at the market”) offerings or indirectly by buying shares borrowed (and subsequently sold) by delta-neutral hedge funds that simultaneously hold the company’s convertible bonds. This is the Ponzi aspect of company operations — publicly showcasing a bitcoin yield significantly higher than any traditional yield while obscuring the fact that the yield arises, not from the sale of company goods or services, but from the new investors themselves. They embody the yield, and the extraction of their hard-earned funds will persist as long as they willingly provide it. The extent of the extraction correlates with the level of confusion, measured here as the premium of common shares over company net assets. This premium is sustained by intricate but appealing company narratives, promises, and financial instruments.
Due to the term “Ponzi” being directed at Bitcoin enthusiasts for over a decade, they have become accustomed — and rightly so — to simply dismiss such criticisms entirely. However, just because an entity within the Bitcoin sector has deliberately or inadvertently constructed a Ponzi scheme does not inherently imply that bitcoin itself is such a scheme. The two assets are distinct. Throughout the metallic monetary standards of the past, Ponzi schemes existed, but that does not suggest that the precious metals themselves were, or are, such schemes. When I assert this about Strategy in its current state, I do so from a definition standpoint, not from tedious exaggeration.
The Accumulation Proceeds
Before reaching any further conclusions, it’s time to revisit where we paused in the initial report and map significant company decisions made over the past six months. Strategy announced on December 9 that roughly 21,550 bitcoin had been procured for about $2.1 billion (average price: approximately $98,783 per bitcoin). This acquisition was executed with proceeds from the ATM detailed in the well-known 21/21 Plan initiated earlier that year. Just a few days later, an additional 15,000 bitcoin were acquired, also via the ATM offering, and shortly after that announcement, about 5,000 more were obtained.
The conclusion of 2024 witnessed the company seeking from its shareholders an amendment to augment the number of authorized shares of class A common stock from 330,000,000 shares to 10,330,000,000 shares — a 30-fold increase. The authorized shares of preferred stock were to rise from 5,000,000 shares to 1,005,000,000 shares — a 200-fold increase. While this does not specify the total amount to actually be issued, it was done to grant the company greater freedom in future financial maneuvers as the 21/21 Plan quickly ran its course. By also prioritizing preferred stock, another variant of funding could now be pursued. The year concluded with approximately 446,000 bitcoin held by Strategy, and a company bitcoin yield of 74.3%.
Perpetual Strike Preferred Stock
The new year commenced with an 8-K filing stating that Strategy was now poised to pursue new funding through preferred stock. The new instrument, as the name suggests, was to have seniority over the company’s common shares, signifying that the holders of the preferred shares possessed a more robust claim on any future cash flows. Initially, a $2 billion raise was the target. While the new instrument was being finalized, 450,000 bitcoin had been gathered by January 12. At the end of the month, all 2027 convertible bonds were called in for redemption for newly issued shares, as the conversion price was now below the market price of the shares. Any Strategy convertible bond that was far “in the money” becomes unattractive to the main buyers of such instruments — the gamma-trading, delta-neutral hedge funds — who favor early conversion followed by new convertible bond issuances over retaining the old bonds until maturity.
On January 25, 2025, the firm finally submitted
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its prospectus for Strike perpetual preferred stock ($STRK), and roughly one week later, 7.3 million Strike shares were issued featuring 8% cumulative dividends on the liquidation preference of $100 per share. In essence, this translated to a $2 per share quarterly dividend indefinitely, or until the shares convert to Strategy shares if the latter reaches $1,000. The conversion was articulated at a 10:1 ratio, implying that 10 Strike shares needed conversion for each new Strategy share. In simpler terms, the instrument resembles a dividend-yielding perpetual call option on Strategy common shares. If considered necessary, Strategy can provide the dividends in the form of its own common shares. On February 10, approximately 7,600 bitcoin were acquired using the proceeds from the Strike issuance, along with funds from the conventional ATM offering of common shares.
On February 21, Strategy distributed $2 billion in convertible bonds maturing March 1, 2030, set with a conversion price of around $433 per share, reflecting a conversion premium of roughly 35%. Nearly 20,000 bitcoin could immediately be purchased with the proceeds. Shortly thereafter, a new prospectus was released, allowing the company to issue up to $21 billion in Strike perpetual preferred stock, suggesting that the already ambitious 21/21 Plan of the previous year had evolved into something significantly more substantial.
Perpetual Strife and Stride Preferred Stock
Immediately following the company’s public declaration of its ambitious funding plan, a new instrument was announced; Strife ($STRF), a perpetual preferred stock akin to Strike, was set to launch with 5 million shares. It aimed to provide 10% annual dividends in cash — disbursed quarterly — rather than 8% paid in cash or common shares. Strife, distinct from Strike, lacked an equity conversion feature, yet was positioned senior to both common shares and Strike. Any deferral of dividends would be rectified with elevated future dividends, capped at an annual dividend rate of 18%. At the time of issuance, the original plan to issue 5 million shares appeared to have increased to 8.5 million shares, generating over $700 million. Through ATM transactions for both common shares and Strike, Strategy was able to publicly declare in March that the company possessed over 500,000 bitcoin. April primarily focused on typical common share ATM operations until that avenue of funding was nearly exhausted. Strike ATM operations persisted as well, but likely due to low liquidity, the capital raised was minimal. With these earnings, Strategy’s total bitcoin holdings increased beyond 550,000 bitcoin.
On May 1, Strategy revealed plans to initiate another $21 billion common share ATM offering. This announcement came shortly on the heels of the ATM component of the initial 21/21 Plan being fully utilized, and it confirmed the rationale discussed in the earlier report and on X. As any premium over net assets presents an arbitrage opportunity for the company, management is compelled to continue issuing new shares that are overvalued compared to the underlying bitcoin assets to capitalize on it. Issuance commenced almost immediately, allowing for further bitcoin accumulation.
As the fixed-income segment of the initial 21/21 Plan was already extended with the new preferred stock in mind, investors now encountered a formidable 42/42 Plan, indicating a potential maximum of $42 billion in common share issuance and $42 billion in fixed-income securities. May also featured the SEC filing for a fresh $2.1 billion ATM offering for the Strife perpetual preferred stock instrument. By the end of the month, all three ATM offerings were issuing shares for the procurement of new bitcoin. At the start of June, yet another instrument was unveiled: Stride ($STRD), a perpetual preferred stock asset resembling Strike and Strife, was set to debut. It planned to offer 10% optional, noncumulative dividends in cash, had no equity conversion feature, and was subordinate to all other instruments with the exception of the common shares. Just under 12 million shares valued at approximately $1 billion were initially issued, facilitating the acquisition of about 10,000 additional bitcoin for the company’s reserves.
A Dazzling Mosaic of Bitcoin Treasury Companies
With the STRK, STRD, and STRF products launched, coupled with Strategy’s 21/21 Plan in full operation, the overall context of the past six months should be clearer. I noted in the initial report that the primary justification for the convertible bonds was not, contrary to the company’s assertions, to provide bitcoin exposure to a segment of the market desiring such. The bond purchasers were predominantly comprised of
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The delta neutral hedge funds did not possess any real bitcoin exposure, as they were concurrently shorting Strategy shares. It was entirely a façade. The genuine motive behind Strategy providing these securities to lenders was to create an illusion of financial innovation meant for a multitrillion-dollar sector, while enabling additional bitcoin acquisition without diluting equity. As investors placed bids on the common shares, the price variance against net assets and the chance of obtaining risk-free bitcoin yield increased correspondingly. The higher the economic disarray, combined with Michael Saylor’s eloquence and vibrant metaphors, the larger the arbitrage prospects for the company.
Over the past six months, the issuance of three distinct perpetual preferred stock securities, along with several existing convertible bonds, allowed these intricate financial instruments to present an air of innovation, thereby encouraging increased bids on the common shares.
As of now, the common shares are trading at approximately twice the net assets, which is quite an achievement for company management, considering the substantial volume and activity of common share ATM offerings. This indicates that Strategy can keep acquiring roughly two bitcoins for the price of one in a risk-free manner.
In 2024, the company might experience positive momentum from the widely recognized “reflexivity flywheel” notion, which posits that increasing bitcoin purchases by the company would elevate its share values, thus offering further chances to buy more bitcoin. By 2025, this self-referential folly slightly transformed into a “torque” narrative, depicted as official representations of fixed income gears powering the common shares, with bitcoin yield generated from this mechanism. However, few investors seemed concerned about the origins or methods behind this yield, and instead, this fabricated dynamic was thoughtlessly applauded.
Preferred shares are financial instruments and not bound by physical laws. As an engineer, it is unsurprising that Saylor conjured such misleading metaphors, making bitcoin yield seem to arise from what can only be perceived as financial sorcery. Yet, given the lack of actual company revenues, and the absence of genuine banking (the company borrows but does not lend), the bitcoin yield ultimately has to derive from the previously outlined Ponzi aspect of the company’s business model; retail investors are entranced by carefully crafted narratives, driving them to inflate the common share prices sufficiently for bitcoin yield opportunities to emerge. Any bitcoin yield from the diverse debt instruments is not settled yet, as debt must eventually be settled. Only the bitcoin yield produced from common share ATM offerings is immediate and conclusive — a true profit.
A Bubble of Bitcoin Treasury Companies
Whether aware or not that narratives can’t indefinitely sway reality, the well-received bitcoin yield concept from Strategy has spread rapidly among management teams of smaller firms globally. CEOs have observed how Strategy insiders, by persistently selling shares to retail investors chasing those shares, have amassed substantial wealth, prompting them to replicate the strategy. The ongoing insider selling at Strategy can be validated through numerous Form 144 filings.
Numerous companies have successfully executed this strategy, already enriching management and existing shareholders at the expense of newcomers. However, this trend has to cease eventually, and many of these firms, desperately clinging to the bold new tactic of becoming bitcoin treasury companies (due to their traditional main business either struggling or failing), will likely be the first forced to liquidate their bitcoin assets to pay creditors when circumstances worsen. Michael Saylor himself once confessed to his desperation before discovering bitcoin.
- Metaplanet, formerly known as Red Planet Japan, notably struggled to achieve profitability in Japan’s budget hotel industry.
- Before Méliuz SA resorted to a bitcoin acquisition strategy, it had endured a 100:1 reverse split.
- Vanadi Coffee SA inched closer to bankruptcy, operating five cafes and a bakery in Spain’s Alicante region, but its pivot to a bitcoin strategy appears to have drastically improved its share value.
- The infamous meme stock, Trump Media & Technology, suffering from no discernible revenue, is now pursuing billions in funding to establish a bitcoin treasury company aimed at reviving its share price, which is at record lows.
- Bluebird Mining Ventures Ltd, likely driven by desperation—at least judging by its share price—recently opted to sell any gold it has mined to finance bitcoin purchases for its treasury; the shares have surged nearly 500% within a month as of this writing.
- H100 Group, a small, previously struggling Swedish biotech firm, has reportedly returned around 1,500% to its investors in a month due to revelations that Adam Back, the CEO of Blockstream, is financially backing the company through some form of convertible bonds, aimed at pursuing a bitcoin treasury strategy.
The list could continue indefinitely, but I believe the point is clear; it’s not Microsoft, Apple, or Nvidia that are morphing into bitcoin treasury firms, but failing businesses that have little left to lose. Jesse Myers, a supporter of Strategy and a direct influence on Michael Saylor’s bitcoin valuation framework, acknowledged that,
“[…] with MicroStrategy, Metaplanet, and Gamestop, they are all zombie companies. They all had […] an incentive to take a hard look in the mirror and say, we can’t continue with the strategy we’ve… the way we’ve been operating. We need to completely reinvent our method of delivering shareholder value.”
All these desperate entities have gazed at Michael Saylor and Strategy, believing they have discovered a clear route to wealth. By engaging in the same financial sorcery, they are now partaking in a substantial transfer of wealth as the bitcoin treasury company bubble unfolds.
When the Mosaic Breaks
Though part of the impressive corporate mosaic, Strike, Strife, and Stride rank senior to equity. The same applies to the convertible bonds, with not all currently “in the money.” Future free cash flow must always reach holders of these instruments before any remainder can be allocated to common shareholders. During prosperous times, this is evidently not an issue.
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Due to the relatively low debt ratio of the firm; during adverse periods, the worth of all company assets decreases significantly while debt responsibilities persist — like towering, looming hazards to any prospective creditor. Because of a situation occasionally referred to as debt overhang, any new lender will be reluctant to extend credit for the purpose of settling other debt responsibilities. What began as a captivating assortment of tales and embellishments transforms into something that turns against its originator.
This is all intensified by the reality that an extended bitcoin bear market will generate additional selling pressure on the asset from the numerous bitcoin treasury companies facing turmoil. The more popular the Strategy’s manual becomes, in essence, the more severe the forthcoming bitcoin downturn, likely erasing much of the equity of most firms that have pursued such a strategy to its harsh conclusion.
In conclusion: Michael Saylor appreciates bitcoin. He, like everyone else, prefers greater bitcoin to lesser bitcoin. It is incredibly naive to assume that he will allow company leadership to overlook what is essentially an arbitrage. When common shares are valued above net assets, the company can generate risk-free earnings for its existing shareholders by redistributing wealth from the purchasers of newly issued shares. This will persist in the form of increasingly larger common share ATM offerings alongside new, confusing “innovative products,” despite objections and murmurs about equity dilution. Proof of this assertion is my forecast issued in March, materializing as a new $21 billion ATM offering barely a month and a half later. If Strategy chooses not to act on this arbitrage, all the imitators will seize it first as they strive to enhance their bitcoin treasury in a similarly risk-free manner. In the frantic rush to create and broaden all these arbitrage openings, companies will incur debt in various forms, and peril is widespread.
During the forthcoming bitcoin bear market, the Strategy share price will achieve — and then dip below — net assets per share, causing substantial bitcoin-denominated losses for anyone purchasing at today’s premium. The most prudent course of action a Strategy investor can undertake today is to do precisely what the company and its insiders are all doing: Sell the shares!
Bitcoin is no longer the primary strategy of this company, nor of any of the now proliferating bitcoin treasury firms; you are.
This is a revised version of the article published on the author’s Medium page. A more comprehensive evaluation is highlighted in the upcoming Bitcoin Magazine Print issue — ensure you get your subscription today.
BM Big Reads are weekly, thorough articles on some pertinent topic related to Bitcoin and Bitcoiners. If you have a proposal you believe fits the model, feel free to contact us at editor[at]bitcoinmagazine.com.
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