#CryptoIntegration Investing.com - Michael Saylor, the most famous investor regarding the purchase and accumulation of Bitcoin, has built his career on testing the limits of certainty in markets. Today, the chairman of Strategy Inc. places his faith in a financial adventure that may be the riskiest of his career.
Over the years, Saylor has encouraged his followers to pump their savings into Bitcoin, mortgage their homes, and even "sell college" to buy more. For his fans, he is a prophet with a balance sheet; while skeptics see him as merely a manic godfather. In either case, he has managed to transform an obscure software company into the world's largest institutional holder of Bitcoin, with a persistence that few other executives dare to match.
Now, Saylor is asking for a new leap of faith: adopting an unconventional financing tool — perpetual preferred stock — to move away from selling common stocks and convertible bonds, the tools that helped him build a $75 billion "Bitcoin arsenal." Ironically, these securities never mature, and some can defer distribution payments, making them flexible for the issuer but concerning for investors.
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An unusual financial innovation
The new issuance, called "Stretch," pays variable interest distributions and does not grant voting rights. This type of security is neither debt nor common stock, but Saylor bets that it combines the advantages of both, providing him with new liquidity to continue buying Bitcoin without significantly diluting shareholder ownership. Over the next four years, he plans to shed billions in convertible bonds, reduce common stock sales, and primarily rely on these issuances as the main financing tool.
The bet is extremely bold: creating what the company describes as a "Bitcoin Credit Model," where a volatile asset supports a stream of income-generating securities. If demand rises, Saylor imagines he could theoretically raise "$100 billion... even $200 billion." But if the bet fails, the company may find itself stuck between payment obligations with no buyers. Selling Bitcoin is almost prohibited in Saylor's doctrine, who sees currencies as "sacred." His supporters view preferred stocks as a smart way to continue buying coins, but his critics warn that the distributions are hefty and could become a burden if Bitcoin's price falls.
So far this year, the company has raised about $6 billion through four perpetual issuances, the latest being the $2.5 billion "Stretch" tranche, which is one of the largest capital raises in the crypto world this year, surpassing the IPO of "Circle." About a quarter of the sale went to individual investors, underscoring the position of Saylor's enthusiastic followers as a primary source of funding.
An unconventional audience and a risky market.
Michael Youngworth, head of global convertible bond and preferred stock strategies at Bank of America, said: "I've never seen a company exploit public enthusiasm the way MicroStrategy has."
This move towards retail investors is notable, as the preferred stock market is typically dominated by large banks and investment facilities. The "Strategic" company is not credit-rated, making its securities less attractive to many fixed-income investors. If individual enthusiasm wanes, Saylor will need to court insurance companies and pension funds — the entities he says he aspires to — or risk failing in his grand ambitions to raise funds.
Since the beginning of 2024, Saylor has raised over $40 billion through a mix of stocks and bonds — $27 billion from common stock sales and $13.8 billion from bonds. Thus, "Strategic" has become a mirror of Bitcoin on Wall Street. One practical motivation for the shift: the convertible bond market is closed to individual investors.
A new capital structure… but
Phong Li, CEO of Strategic, presented this shift as a way to build a more robust capital structure — in contrast to the "crypto winter" of 2022, when the company was burdened with a Bitcoin-backed loan from Silvergate Bank and other debt burdens. He said: "Over time, we may not have to issue convertible bonds, but will rely on perpetual preferred securities that never mature."
But this plan relies on paying substantial distributions permanently, using an asset like Bitcoin, which does not generate income by nature and has lost half its value within months. If Bitcoin prices fall and investor appetite wanes, the company may find itself facing large obligations without new sources of liquidity.
Perpetual preferred stocks never mature, and some allow for deferral of distributions without considering it a default. Under current terms, the company can pay some obligations in cash or stock, and some distributions are non-cumulative, meaning that deferred payments are not required to be made up later. Currently, these distributions are largely funded through sales of common stock under the direct market sale program, a pathway Saylor has promised to reduce but not completely halt. However, the company has confirmed it may sell stock even if its value falls below the net asset level by 2.5%, if necessary to cover debt interest or preferred distributions.
The risk of distributions forever
Unlike convertible bonds, which are either converted into equity and dilute ownership or paid back in cash, preferred stocks do not require repayment of their principal. This is significant because one of the secrets to "Strategic's" strength has been its ability to sell shares at prices far exceeding the actual value of its Bitcoin reserves. Saylor himself described this as a "mNAV Premium," a multiple of net asset value, which allowed him to raise liquidity and buy Bitcoin at a relative discount.
But this model is fraught with risks. Youngworth says: "These are high-yield instruments, paying coupons ranging from 8% to 10% indefinitely could be extremely difficult." Liquidity — a concern for any company with weak operational revenues — could evaporate suddenly with any decline in the Bitcoin market.
Short seller Jim Chanos considers the "non-cumulative" versions of these securities "crazy" for institutions. They are perpetual, non-redeemable, and their distributions are paid only at the issuer's discretion. He said in an interview with Bloomberg: "If I don't pay the distributions, there's no need to make them up later." He sees the company's financial leverage as maxed out, and these issuances as merely a new way to increase risk, suggesting shorting a strategic stock in exchange for buying Bitcoin directly, betting on the collapse of the value premium.
Conclusion: Success or a cautionary lesson?
In a "strategic" capital structure, these securities precede common stocks but rank lower than convertible bonds, lacking the protection provided by traditional debt. This is why Wall Street managers prefer convertible bonds, which are easier to hedge through market-neutral strategies. While preferred stocks are harder to hedge, shedding convertible bonds means losing a favored financial arbitrage tool.
The success of this approach entirely depends on Bitcoin remaining valuable and on continued investor confidence. If Saylor is right, Bitcoin may come closer to its status as a traditional financial guarantee. But if he is wrong, his balance sheet could turn into a cautionary tale: what happens when you try to convert a volatile asset into a stream of income, and then the market loses confidence.
But the danger may not come solely from his company but from the broader market, as the risks associated with treasury companies reliant on digital assets are increasing. Yulia Guseva, director of the blockchain and digital finance program at Rutgers Law School, says: "I see some indicators of a bubble in crypto treasury companies. If the market's appetite dries up, this model won't last."
