Original title: How Michael Saylor Will Keep Strategy From Ever Being Liquidated of Its Bitcoin

Original author: Steven Ehrlich, Unchained Original translation: Saoirse, Foresight News

Michael Saylor, Chairman of Strategy (MSTR), received widespread acclaim in the investment community on Friday for his company's record high operating revenue, net profit, and earnings per share last quarter (see the figure below).

In fact, the company's stock price has risen 166% over the past year, double the increase of Bitcoin (BTC) during the same period.

(Trading View)

Regardless of how it is measured, such performance is outstanding. Especially in the context of many imitators flooding in and potentially diverting investor funds, such performance is even more remarkable.

But this does not mean that Strategy can rest on its laurels. As a leader in the cryptocurrency fund management field, it has certain privileges, and it seems to be ready to fully exploit this advantage.

Bitcoin reserves continue to increase, but the strategy has new changes

As of the writing of this article, Strategy holds 628,791 bitcoins, worth $71.9 billion. The company has accumulated this asset portfolio through various means: issuing common stock, multiple types of preferred stock (which may provide dividends or conversion rights in the coming years), and convertible bonds. The specific details of various preferred stocks are shown in the figure below.

But now, the company plans to make significant adjustments to its financing methods—specifically, to completely eliminate debt. Although its balance sheet shows good performance (according to financial reports, the enterprise value is $126 billion, and debt is only $8.2 billion), the company still hopes to reduce its debt to zero. In the investor conference call following the earnings report on July 31, the company announced plans to redeem its issued convertible bonds and instead focus on multiple rounds of issuing preferred stock.

This means that its $6.3 billion preferred stock issuance scale is expected to grow significantly. In fact, at the investor briefing, the company announced plans to refinance $4.2 billion through its latest preferred stock product, Stretch (STRC), targeting a monthly yield of 10%.

'This decision reflects the positive development of Strategy's financing capability in the capital markets. The convertible bond market is filled with hedge funds and arbitrageurs who establish long positions in Strategy by buying convertible bonds, but at the same time, they reduce net risk exposure by shorting a large amount of stock (about 25%). In other words, for every bond they buy, they sell a substantial amount of stock, indicating only a mild bullish stance on Strategy,' said Lance Vitanza, Managing Director at TD Cowen, in an interview with (Unchained) (full discussion available on X platform or YouTube). 'A few years ago, convertible bonds were the best financing channel for the company. But with the development of Strategy, they have been able to enter the preferred stock market, where the terms are better, the appreciation potential is greater, and pricing efficiency is higher.'

This move once again confirms why Saylor is seen as a 'demigod' in the Bitcoin community—he is revered not only for hoarding Bitcoin but also for his responsible operational approach. With few exceptions, he almost never relies on leveraged financing, primarily depending on the equity market.

Although its robust capital structure can avoid forced liquidation (unless the Bitcoin price crashes more than 80%), Saylor is still constantly pushing the limits.

Always imitated, never surpassed

But do not expect the many followers in the fields of Bitcoin, ETH, SOL, BNB, etc., to emulate this practice. These institutions are just getting started, and as I have pointed out in other related reports, they are eager to scale quickly through competition.

This means they will utilize all the tools available in the capital markets: including private placements of public companies (PIPEs), credit lines, and of course, debt.

In previous reports, I wrote: 'Each method has its pros and cons. Private fundraising can raise a large amount of funds in a short time, helping to initiate reserve strategies, but it can create significant sell-off pressure. Issuers can also choose to register their stocks with the SEC before issuing, but the fundraising cycle is longer. Nowadays, more companies adopt a hybrid model: one-third of the funds come from private placements, while the rest is raised through convertible bonds or credit instruments. This method can delay sell-off pressure but increases balance sheet leverage, which can lead to problems if prices crash.'

This means that debt is practical in financing: shareholder dilution may not appear for several years, and in the current bubble market, the coupon rate is nearly zero. For example, the Bitcoin fund management company Twenty One raised $485 million through the issuance of convertible bonds in May to kickstart its strategy; Anthony Pompliano raised $235 million for his Bitcoin fund management company ProCap Financial through convertible bonds in June.

This is essentially a 'buy now, pay later' model.

A unique existence

For investors, this means they must always keep in mind: in today's crowded cryptocurrency fund management field, Strategy remains a unicorn. Currently, it is the only company able to enter the preferred stock market. Its first preferred stock issuance was this January, and future issuance scales will also expand significantly.

For other companies, entering the preferred stock market and eliminating debt is still just a vision. 'Most of these companies will start from the convertible bond market, hoping that some of them can grow and eventually qualify to enter the preferred stock market,' Vitanza said.

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