Strategy Strategies (MSTR) may be at risk from Michael Saylor’s Financial Wizardry

Is the Strategy (MSTR) in trouble?

Led by executive chairman Michael Saylor, the firm formerly known as Microstrategy has Vacuumed up 506,137 Bitcoin (BTC), which currently costs nearly $ 44 billion in the current BTC price near $ 87,000, for nearly five years. In the casual observer, the company seems to have a magic, unlimited pool of funds which is drawn to buy more Bitcoin. But the strategy has captured a huge chunk of his stash by releasing billion -billions of dollars in equity and The notes can be replaced (Debt security that can be converted to equity under special conditions), and more recently by releasing the preferred stockA type of equity that provides dividends to investors.

However, the price of Bitcoin pushed down almost 20% from over $ 109,000 two months ago. And although swings in prices are far from unusual, the recently aggressive aggressive purchase of the average of Saylor’s acquisition price and Team Mean Strategy has increased to $ 66,000. The company is actually just a moderate price swing from being red to its purchase.

Which is asking the question: Can all the financial wizardry of the company strategy end should Bitcoin have to keep lower?

“It is not likely that this results in a scenario where (strategy) has to liquid a bunch of bitcoin because it gets a margin called,” Quinn Thompson, founder of the Crypto Hedge Fund Lekker Capital, told CoinDesk in an interview. “For the most part, the debt is likely to be refinanced for the convertible notes. And then (the firm) began to issue this timeless preferred stock, which would never have to be paid.”

In other words, there is not only a very small opportunity that the approach may suffer from the kind of explosion trembling with crypto companies and projects in 2022 (such as Genesis or three arrow capital), but the firm has even prevented the posting of bitcoin holders as collateral for loans – except for a loan taken from Silvergate, which was paid in 2023.

However, that does not mean it is blue air in advance for MSTR investors, because under different situations, Saylor may be forced to issue more justice than the market can handle to maintain the course.

“If he does not pay dividends with the cash flow of the approach, he will release more shares and break the stock price. But it is no different than he does. Whenever the retail is bid, he will do that, and the flows may not be able to enter them.

The action on Saylor balancing

The approach currently uses three different methods for increasing capital: it can issue equity, convertible notes, or preferred stock.

The release of equity means that the approach creates new MSTR shares, sells them to the market, and uses proceeds to buy bitcoin. Naturally, which creates the sale of pressure on MSTR and can potentially push the stock down.

The changeable notes allow the approach to gather funds quickly without MSTR stock. Usually, investors like these notes because they offer a solid harvest, they benefit if the stock surge, and they can usually be redeemed in cash for a value equal to the original investment in addition to interest payments. The massive volatility of the changing strategy notes, however, allowed the company that most will issue them at a zero percent interest rate And it still meets high demand from sophisticated market participants, who have made bank trading volatility.

Finally, the approach began to deploy preferred stocks. These are instruments that tend to appeal to investors looking for lower volatility and more unpredictable return through dividends. There are currently two offerings: strk, which provides an 8% annual return; and Strf, who pays 10% annual.

But why is the approach that releases all different types of investment vehicles? The idea is to create demand for strategy for all kinds of investors who can have different risk permissions, Jeffrey Park, head of Alpha approaches to crypto asset management, CoinDesk said in an interview.

“The convertible bond investors and the standard equity investors usually align with both of them volatility looking for structures,” Park said. “The preferred ones are different. They are really favored by investors who want to reduce volatility at all costs for a stable, reliable and high coupon that they think is worth the risk of credit.”

“The strategy strategy structure is almost like a seesaw on a playground,” Park added. “Common shareholders and converts are on one side, preferred equity holders are on the other side. As the emotion changes, how weights move, its total weight – which is the value of the enterprise of approach – remains the same. It is a redistribution of people who see the value of people in full responsibility that exists in the balance of the company.

Risks

Although, the approach now finds itself in a situation where it should pay 8% dividends to the STRK, 10% dividends to the STRF, and a blend of 0.4% interest rate on convertible bonds.

In the strategy software business that provides a very small cash flow, finding funds to pay for all of these dividends can be confusing.

The company is likely to continue to issue MSTR stock to repay the interest it owed, Thompson said. “It will hurt the price of shares. At the most intense scenario, the stock can trade in a discount (from Bitcoin handles), as he will need to issue shares to pay interest and cover the flow of cash.”

“Draconian’s real scenario is for discount to get wide, like 20% or 30%, such as Grayscale’s GBTC (before it converts to an ETF), that shareholders are angry and tell her to buy shares and close the discount,” Thompson added. “Right now, he’s adding the value of the shareholder by selling stock at a high price and buying bitcoin, but in the future the reverse may be true, where the best way to add shareholder value is to sell Bitcoin and buy stock. But that’s a bit far.”

The power of voting in the company lost control of the company in 2024 due to the continued release of MSTR stock, which means that the above scenario could occur, especially if investors activists decided to engage.

Another potential risk for MSTR holders is the 2x long strategy exchanged by funds (ETF) released by T-Rex and Defiance, MSTX and MSTU, has seen strange continuous demand despite the stock drawdown. Each time investors want to get or increase their exposure to these ETFs, those who provide will need to buy twice as many MSTR shares. The popularity of these ETFs has helped create a continuous purchase of pressure for MSTR – to this day, they have accumulated more than $ 3 billion in MSTR exposure.

The problem is that music may stop at a later date. And if these ETFs are starting to sell their MSTR shares, the reaction to the stock price can be violent.

“I don’t know where the endless capital came from to buy the dip. These ETFs lost their losses. They went down,” Thompson said. “I mean, it’s not a structure to move to the demand curve you should expect. It’s not something you should really bake in your 10-year Bitcoin price prediction, but as long as it has it, it’s important for Bitcoin. So I kept amazed by it.”