If you believe Bitcoin is going higher, there is a remarkably simple way to express that conviction.
Buy Bitcoin.
What you do not need to do is buy shares in a corporation that owns Bitcoin, issues common stock, sells preferred shares, carries billions in debt, pays enormous dividends, maintains a multibillion-dollar cash reserve, buys back its own securities and now sells Bitcoin to keep the machine running.
That corporation is Strategy.
For years, Michael Saylor transformed the company formerly known as MicroStrategy into Wall Street’s loudest Bitcoin proxy. The pitch was irresistible during the good times: Strategy could raise capital, buy more Bitcoin and use financial engineering to increase the amount of Bitcoin effectively backing each common share.
Strategy now markets MSTR as “amplified Bitcoin.”
That description deserves more attention than it gets.
Amplification works in both directions.
If Bitcoin rises sharply and Strategy can issue securities on favorable terms, buy more Bitcoin and maintain a premium valuation, MSTR can outperform the underlying asset. That is the bull case, and it has worked spectacularly during parts of the Bitcoin cycle.
But if your fundamental investment thesis is simply that Bitcoin itself will appreciate, MSTR introduces an entire layer of risks that Bitcoin does not have.
The latest filings make that painfully clear.
During the week ending Aug. 2, Strategy sold 1,638 Bitcoin for $104.73 million at an average price of $63,957. It did not sell those coins because Saylor suddenly became bearish on Bitcoin. The company said $52.4 million of the proceeds went toward preferred-stock dividends and another $52.3 million was used to repurchase STRC preferred shares.
Think about what just happened.
The company famous for accumulating Bitcoin sold Bitcoin to service the financial structure it created around accumulating Bitcoin.
At the same time, Strategy sold more than 3 million new MSTR common shares, raising about $290.6 million. Of that money, $250 million went into its U.S. dollar reserve, another $28.9 million went toward STRC repurchases and the remainder was added to cash.
This is no longer the clean story some investors still imagine.
You are not buying Bitcoin.
You are buying a seat inside an increasingly complicated capital structure whose principal asset happens to be Bitcoin.
As of Aug. 2, Strategy held 842,138 Bitcoin acquired for approximately $63.51 billion, or an average of $75,419 per coin. That remains an enormous position and makes Strategy the dominant corporate Bitcoin holder. But the company also has layers of securities sitting around that Bitcoin pile.
By late May, Strategy reported approximately $6.7 billion of convertible debt and $15.5 billion in preferred stock outstanding. Those preferred securities are not decorative. They expect to be paid.
STRC, officially called Variable Rate Series A Perpetual Stretch Preferred Stock, currently carries a 12% annual dividend rate. Strategy has said management does not intend to recommend lowering that rate until STRC demonstrates sustained trading at or near its $100 stated value.
That is one hell of an expensive passenger to put on the Bitcoin bus.
Strategy’s answer has been to build a massive dollar reserve. As of Aug. 2, that reserve stood at $4 billion and exists specifically to help support preferred dividends and interest on outstanding debt.
Again, compare this with owning Bitcoin.
Bitcoin does not owe anyone a 12% dividend.
Bitcoin cannot dilute you by issuing another three million Bitcoins next Tuesday.
Bitcoin does not have convertible debt.
Bitcoin does not need to defend the market price of STRC.
Bitcoin does not have a board deciding whether to sell Bitcoin to buy back preferred stock.
Bitcoin does not have Michael Saylor deciding which security in a financial alphabet soup needs support this week.
MSTR does.
This is the part that gets lost when investors casually describe Strategy as “Bitcoin with leverage.”
It is more complicated than that.
Strategy has common shares, multiple classes of preferred securities, convertible debt, a dollar reserve, at-the-market stock issuance programs, stock repurchase authorizations and a Bitcoin monetization program. The company has effectively built a miniature capital market on top of a gigantic pile of Bitcoin.
Maybe Saylor can manage that machine brilliantly.
But why take that risk if the only thing you actually believe in is Bitcoin?
Strategy even authorized a Bitcoin monetization program that allows it to sell Bitcoin to raise cash. Earlier this summer, the company disclosed that it could generate up to $1.25 billion through Bitcoin sales to help fund its reserve and financial obligations.
That represents a meaningful change from the mythology that developed around Saylor.
For years, Bitcoin investors heard an almost religious message about accumulation. Buy Bitcoin. Hold Bitcoin. Never sell Bitcoin. Treat it like digital property that should be carried forever.
The corporate reality is considerably less romantic.
When preferred shareholders need paying, Bitcoin can be sold.
When STRC needs support, Bitcoin can be sold.
When the capital structure requires liquidity, Bitcoin can be monetized.
There is nothing necessarily irrational about that from a corporate-finance perspective. A public company has obligations that an individual Bitcoin holder does not have. Management has to protect liquidity, manage liabilities and balance the interests of several classes of investors.
That is precisely the point.
Why voluntarily inherit those problems?
If Bitcoin rises from $65,000 to $100,000, one Bitcoin is still one Bitcoin. Its owner does not need to wonder whether management issued more common shares during the rally, changed its financing model, increased preferred obligations, bought back another security or decided that some portion of the Bitcoin should be sold.
An MSTR shareholder has to care about all of those things.
Common shareholders also occupy the riskiest part of Strategy’s increasingly elaborate structure. Debt holders have contractual claims. Preferred shareholders sit above common equity. The common stock is where much of the residual volatility ultimately lands.
Strategy practically advertises this feature. Its own description says MSTR absorbs the excess volatility and performance of its Bitcoin holdings after separating out its credit instruments.
Translated from Wall Street language: congratulations, MSTR shareholders. You are the shock absorber.
That can be fantastic when everything is moving upward.
It is considerably less entertaining when Bitcoin falls, Strategy’s valuation premium contracts and the company still has obligations to securities carrying double-digit yields.
There are legitimate reasons someone might choose MSTR.
It trades inside a conventional brokerage account. Some investors cannot or do not want to hold Bitcoin directly. MSTR can offer leveraged upside during powerful Bitcoin rallies, and Saylor has demonstrated an extraordinary ability to access capital markets.
But those are arguments for buying Strategy, not arguments for buying Bitcoin.
Investors should understand the distinction.
If you specifically want leveraged exposure to Saylor’s ability to arbitrage capital markets, issue securities, manage debt and expand Bitcoin per share, then MSTR is a deliberate bet on that system.
If your thesis is simply that Bitcoin will become more valuable, buying MSTR is an oddly complicated way of getting there.
You are taking Bitcoin risk anyway.
Then you are adding corporate risk.
Management risk.
Dilution risk.
Debt risk.
Preferred-stock risk.
Premium-to-NAV risk.
And the possibility that the company holding your Bitcoin exposure will sell some of that Bitcoin for reasons completely unrelated to whether Bitcoin itself is a good investment.
Saylor may have built one of the most fascinating financial experiments Wall Street has ever seen. Strategy owns 842,138 Bitcoin and has turned that pile into the foundation for an entire ecosystem of common equity, preferred securities and credit products.
It is impressive.
It is also completely unnecessary if all you wanted was Bitcoin.
The funniest part of the entire arrangement is that investors can spend hours studying MSTR dilution, STRC dividends, convertible notes, BTC yield, mNAV, dollar reserves, preferred buybacks and Saylor’s latest capital-market maneuver before deciding whether they have enough exposure to an asset that can simply be purchased directly.
Bitcoin was supposed to remove the middleman.
Somehow, Wall Street found a way to put Michael Saylor, five securities, billions of dollars of obligations and a corporate treasury department back in the middle.
If you believe in Bitcoin, you do not need to buy Saylor’s machine.
You can just buy Bitcoin.
