Strategy Inc., led by Michael Saylor, has once again confirmed its position as the largest corporate holder of Bitcoin in the world. Despite the fact that the market recently faced sharp declines, during which Bitcoin lost approximately half of its value, the company not only did not retreat, but managed to activate new forms of capital engineering. One of the keys to survival and further growth has become the transition to innovative financial instruments that allow the company to continue making purchases even in an environment of unfavorable accounting results.

A new pillar of the capital structure

A fundamental shift in Michael Saylor’s strategy is the use of so-called perpetual preferred shares, which the company markets as “Stretch preferred.” These are hybrid securities with no fixed maturity that pay investors a regular dividend. This instrument became a necessity after a significant decline in the company’s share price narrowed the premium relative to the value of the Bitcoin it holds, making the issuance of ordinary shares less advantageous for the company.

These products have found their audience mainly among retail investors on platforms such as Robinhood or Charles Schwab. With a dividend yield, according to the company’s official data, at the level of 11.5%, these instruments are compared by the market to the level of high-yield bonds. For investors, they represent a riskier but more profitable alternative to money market funds, while their success is directly tied to the company’s long-term vision as a “Bitcoin bank.”

Accounting reality versus market value

Strategy Inc.’s financial results for the first quarter showed dramatic losses at first glance. Due to rules on the revaluation of digital assets, the company reported a loss of 12.5 billion USD. However, the market did not react to these figures with panic. Most investors view these losses only as an accounting item reflecting a temporary decline in the market price of the cryptocurrency.

Market confidence was strengthened by the fact that Bitcoin subsequently recovered to approximately 80,000 USD. Strategy Inc. confirmed this confidence in April, when it carried out a massive Bitcoin purchase worth more than 4 billion USD. Although the company’s shares reacted in the short term with a decline of 4.3%, the overall accumulation model remains, from the perspective of market capitalization, stable and functional for now.

The flywheel mechanism and its limits

The company’s entire business model operates on the principle of the so-called flywheel. A rise in the price of Bitcoin increases investor interest and the value of the company’s assets, which subsequently allows it to obtain additional cheap capital. This capital is immediately used to purchase more coins, which in turn supports market demand.

However, this mechanism also has its critics. Some skeptics, including well-known investor Jim Chanos, warn that the model is based on a fragile premium of the shares relative to Bitcoin. If demand for the company’s securities were to decline, the company could lose the ability to finance further purchases, which could lead to a weakening of the entire mechanism. Michael Saylor, however, argues that the financing is not dependent on ordinary cash flow, but on investors’ long-term capital belief.

The end of the dogma of non-selling?

Although Saylor is known for his statement that he will never sell Bitcoin, there has been a subtle shift in the management’s rhetoric. CEO Phong Le admitted that the company could in the future sell part of its holdings if it were advantageous from the perspective of buying debt or dollar liquidity. The company already took a similar step on a small scale in 2022 for tax optimization reasons. However, the main goal remains the maximization of the amount of Bitcoin per share.

Outlook

Strategy Inc. has transformed into a unique institution whose fate is fully tied to the largest cryptocurrency. Despite geopolitical tensions and uncertainty in global markets, it continues to accumulate, thereby playing a key role in supporting demand for Bitcoin. For investors, the main question remains whether the price of Bitcoin will rise fast enough for the financing model through high-yield preferred shares to remain sustainable in the long term.