Viewpoint: The structural issue of Strategy has not been fully addressed yet, and we should explore utilizing its Bitcoin holdings to generate yield
BlockBeats News, July 3rd, Galaxy Research Director Alex Thorn stated in a post that Strategy's capital management adjustment announced on Monday was a significant turning point for the company. In the preceding weeks, Strategy's preferred stock "digital credit" system came under pressure, with the preferred stock STRC falling below its $100 face value and hitting a record low of $71.25 on June 26th. The market began to question how the company would continue to pay the growing preferred stock dividends.
Subsequently, Strategy announced a new digital credit capital framework, including a USD reserve policy approved by the board, a revised STRC dividend policy, a $1 billion preferred securities repurchase authorization, a $1 billion MSTR common stock repurchase authorization, and a BTC realization plan. Additionally, the board increased the STRC annualized dividend rate from 11.5% to 12%, effective for semi-monthly dividends from July 1st onwards. Following the announcement, MSTR rose 12.6% to around $92.70 on Monday, and STRC rose 12.2% to around $83.70.
Thorn believes that Strategy's actions are prudent but may not permanently address the structural issues. The company still has a massive preferred stock system and ongoing payment obligations, with $6.7 billion in convertible bonds due in 2027 and 2028. The market is not truly concerned about Strategy's lack of assets but rather whether it has enough USD liquidity to pay dividends without harming BTC holders, MSTR common stock shareholders, or preferred stockholders. By raising over $1 billion in cash through the sale of common stock, setting a 12-month minimum cash reserve policy, and increasing the current cash coverage to around 17 months, Strategy has bought itself some time.
The most controversial aspect is the BTC realization plan, which seemingly indicates that Strategy may periodically sell BTC. Thorn does not want to see Strategy selling Bitcoin because the company's identity and MSTR premium are built on the narrative of being a long-term BTC exposure tool, and selling BTC would undermine this story. However, he also believes that selling a small amount of BTC to prevent a disorderly capital structure spiral, protect the preferred stock, and wait for a better market environment can be justified. Strategy should explore how to generate income from its BTC holdings without necessarily selling spot BTC directly. This could include lending out a small portion of segregated BTC on conservative terms or earning volatility income through options strategies.
