Strategy’s Bitcoin Gamble

Key Takeaways

• Strategy (MSTR) spent $23.2B on Bitcoin and is now issuing $21B in 8% preferred stock as financing costs rise.
• Bitcoin ETF outflows hit $750M in two days, with BlackRock selling 2,000 BTC, driving MSTR stock down 16.7%.
• Trump’s Strategic Bitcoin Reserve plan lacks immediate action, while Strategy’s stock premium shrinks from 164% to 79%.

Strategy’s $21B Preferred Stock Offering to Fund Bitcoin Purchases

On March 11, Michael Saylor’s Strategy (formerly MicroStrategy) announced plans to issue up to $21 billion in 8% Series A perpetual-strike preferred stock, convertible into Class A common stock, through an “at-the-market offering” program. This follows its February $584 million preferred stock issuance and a January $563 million offering at $80 per share. Since October 30, Strategy has spent $23.2 billion acquiring Bitcoin, funded by $16.8 billion in stock offerings and $6.4 billion in debt proceeds. 

However, with Bitcoin’s price decline, the value of these holdings has dropped to $17.3 billion, leading to a significant paper loss. Strategy has now exhausted 80% of its planned $21 billion common stock sales, making this preferred stock issuance a critical financing move. With the preferred stock price falling 8.2% to $84.80, the effective interest rate has risen to 9.4%, compared to last month’s 0% interest convertible notes.

Bitcoin Holdings, ETF Outflows, and Market Impact

As of March 9, Strategy holds 499,096 Bitcoin, valued at $42 billion. The company’s recent 219,676 BTC purchase raised its average acquisition cost to $66,357 per BTC, up from $42,692 before the latest buying spree. Since February 23, Strategy has paused Bitcoin purchases, contributing to a market sell-off. Bitcoin has faced additional downward pressure as ETF outflows surged by $750 million in two days, with BlackRock (BLK) selling 2,000 Bitcoin in 24 hours. 

Following the announcement, its stock (MSTR) dropped 16.7% to $239.27, its lowest close since Election Day, while Bitcoin declined 2.4% to $81,084. The company’s market value now stands at $70.4 billion, based on 294 million shares outstanding, including shares from convertible notes. However, Strategy’s premium over its Bitcoin holdings has shrunk from 164% in November to 79%, reducing its ability to raise capital efficiently.

Government Bitcoin Reserve and Future Risks

President Donald Trump’s executive order to establish a Strategic Bitcoin Reserve raised hopes for government-backed Bitcoin purchases. However, no immediate acquisitions were announced, increasing uncertainty. The Treasury and Commerce Departments have been tasked with exploring budget-neutral strategies for Bitcoin accumulation, but political challenges remain—especially as Medicaid cuts and federal spending reductions are being considered. 

There’s speculation that the U.S. might exchange some gold reserves for Bitcoin, though this remains uncertain. Meanwhile, Strategy faces two key risks: Bitcoin’s continued decline and tighter financing conditions. If investor confidence in Strategy’s stock premium erodes further and financing costs rise, the company’s Bitcoin-focused strategy could become unsustainable.