Written by: Steven Ehrlich
Translated by: 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 income, net profit, and earnings per share in the last quarter (see the chart below).
In fact, the company's stock price has risen by 166% over the past year, double the increase of Bitcoin (BTC) during the same period.
(Trading View)
By any standard, such performance is exceptional. Especially in the context that many imitators are flooding into the market, potentially diverting investor funds, such performance is even more remarkable.
However, this does not mean that Strategy can rest on its laurels. As a leader in the cryptocurrency asset management field, it has certain privileges and now seems poised to fully leverage this advantage.
Bitcoin reserves continue to increase, but the strategy has new changes.
As of the time of writing, Strategy holds 628,791 Bitcoins, valued at $71.9 billion. The company has accumulated this asset portfolio through various means: issuing common stock, multiple types of preferred stock (which can provide dividends or conversion rights in the coming years), and convertible bonds. The specific details of the various preferred stocks are shown in the chart below.
But now, the company plans to make significant adjustments to its financing methods—specifically, to completely eliminate debt. Although its asset-liability performance is good (according to financial reports, the enterprise value is $126 billion, with only $8.2 billion in debt), 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 focus instead on multiple batches of preferred stock issuances.
This means its $6.3 billion preferred stock issuance is expected to grow significantly. In fact, during the investor briefing, the company announced plans to refinance $4.2 billion through its latest preferred stock product Stretch (STRC), which aims for 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 flooded with hedge funds and arbitrageurs who establish long positions in Strategy by purchasing convertible bonds while simultaneously reducing net risk exposure by shorting a large amount of stock (about 25%). In other words, for every bond they buy, they sell a large amount of stock, which means they are only slightly bullish on Strategy,” said Lance Vitanza, Managing Director at TD Cowen, in an interview with (Unchained) (the full discussion can be watched on the X platform or YouTube). “A few years ago, convertible bonds were the best financing channel for companies. But as Strategy has developed, 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 regarded as a 'demigod' in the Bitcoin community—he is not only revered for hoarding Bitcoin but also respected for his responsible operational approach. With few exceptions, he almost never uses leveraged financing, primarily relying on the equity market.
Although its robust capital structure can avoid forced liquidation (unless the Bitcoin price drops by more than 80%), Saylor continues to push the limits.
Always imitated, never surpassed.
But don't expect many followers in the fields of Bitcoin, ETH, SOL, BNB, etc., to follow this practice. These institutions are just getting started, and as I pointed out in other related reports, they are eager to rapidly scale up through competition.
This means they will utilize all tools in the capital markets: including public company private equity financing (PIPEs), credit lines, and of course, debt.
In previous reports, I wrote: 'Each method has its pros and cons. Private equity financing can raise a large amount of funds in a short time, which helps initiate reserve strategies but can create huge selling pressure. Issuers can also choose to register stocks with the SEC before issuing them, but the financing cycle is longer. Nowadays, more companies adopt a mixed model: one-third of the funds come from private equity financing, while the rest is raised through convertible bonds or credit instruments. While this method can delay selling pressure, it increases leverage on the balance sheet, which can lead to problems if prices crash.'
This means debt is practical during financing: shareholder dilution may not become apparent for several years, and in the current bubble market, the coupon rate is nearly zero. For example, the Bitcoin asset management company Twenty One raised $485 million in May by issuing convertible bonds to kickstart its strategy; Anthony Pompliano raised $235 million for his Bitcoin 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 constantly remember: in today's crowded cryptocurrency asset management field, Strategy remains a unicorn. Currently, it is the only company that can enter the preferred stock market. Its first preferred stock issuance was in January this year, and future issuance sizes are expected to 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 for entry into the preferred stock market,' Vitanza said.