Strategy (formerly known as MicroStrategy) realized that strengthening one part of its increasingly complex balance sheet could expose weaknesses in other parts.
The Bitcoin treasury company spent $1.5 billion on convertible bond buybacks in May, reducing debt but also draining cash that investors saw as a backstop for preferred stock dividends. A few weeks later, the floating rate Series A Perpetual Stretch Preferred Stock, known as STRC, fell to an all-time low of $82.50, 17.5% below its official price of $100.
Strategy subsequently sold common stock and began rebuilding its reserves. But this response sharpened the contradiction at the heart of Michael Saylor’s funding model. While funds set aside to support STRC cannot be used to purchase Bitcoin at the same time, raising that cash through the sale of MSTR would dilute existing common shareholders.
CryptoQuant said the pressure has become so intense that Saylor’s company should halt Bitcoin purchases until it restores cash reserves and dividend coverage. In contrast, Benchmark Equity Research views STRC’s decline not as evidence of structural failure, but as a market-driven re-pricing of yields demanded by investors.
The disagreement represents the most visible strain yet on Saylor’s efforts to transform Strategy from a software company to an issuer of Bitcoin-backed “digital credits.”
Dividend cost exceeds cash on hand
STRC was launched in July 2025 as a perpetual preferred security designed to trade near $100. Strategy can adjust the dividend rate monthly to make the stock more attractive if the stock price falls below that level.
Since then, the securities have been a key source of funding for Strategy’s Bitcoin purchases. However, that expansion has led to a rapid increase in recurring obligations.
CryptoQuant estimates that Strategy’s annualized preferred dividend debt has nearly quadrupled from approximately $300 million at the beginning of 2026 to $1.2 billion.
At the same time, the company’s cash reserves have fallen 38% since the beginning of the year, the sharpest decline since the May buyback of 0% convertible notes due in 2029.
While the bond retirement removed future receivables from the balance sheet, it also reduced the pool of liquid funds available to cover dividends at a time when Bitcoin prices and Strategy’s securities were under pressure.
CryptoQuant said the company entered 2026 with enough cash to cover more than seven years of dividends. The company estimated that coverage was reduced to approximately 14 months after Strategy restructured its cash position to $1.4 billion.
The analytics firm estimates that Strategy will need about $2.8 billion to restore 24 months of reserves.
The STRC allows Strategy to defer dividends, but the payments are cumulative, meaning that skipped distributions will continue to be paid. While a suspension would temporarily preserve cash, it could undermine investor confidence and increase the cost of future preferred stock issuances.
Therefore, the strategy has few painful options. STRC’s dividend increase may support demand, but it will increase its cash burden. While holding more capital will slow Bitcoin purchases, additional MSTR sales will transfer more costs to common shareholders through dilution.
Strategy’s Bitcoin vault, on the other hand, offers another potential source of liquidity, but it also comes at a cost if you use it now.
CryptoQuant estimates that its holdings have unrealized losses of approximately $10.6 billion at prevailing prices. Selling during a downturn would crystallize some of those losses and call into question the company’s long story of accumulation.
CryptoQuant CEO Ki Yong-joo said Strategy’s recent Bitcoin purchases appear to be absorbing capital without creating a sustained increase in crypto prices.
He described the deal as a “liquidity sink” rather than a price boost, saying the company should prioritize securing cash before making further acquisitions.
Ju pointed out that even though the price of Bitcoin has fallen by about 1%, its realized market capitalization has increased by $467 billion over the past two years. He argued that this divergence indicates that fresh capital is primarily allowing coins to circulate, rather than fostering a broader revaluation of the market.
Under conditions of limited sales, large purchases by institutional investors can cause prices to fluctuate rapidly, Zhu said. If selling pressure increases, the same demand may only support the existing trading range.
He urged strategies to replace the practice of buying whenever capital is available with a model-driven acquisition framework. He also called for rules that would allow the company to sell some of its holdings during future market peaks, arguing that limiting sales would reduce leverage, create value for shareholders and free up funds for purchases during subsequent economic downturns.
Such an approach would be a significant departure from Saylor’s commitment to sustained Bitcoin accumulation.
Common shareholders serve as the backstop
Meanwhile, Strategy’s latest funding showed what options management is now prepared to take advantage of.
Last week, the company sold about 2.7 million shares of MSTR stock, raising $335.5 million. He used almost 90% of his profits, or $300 million, as cash reserves, and used the remaining $35 million to buy 520 Bitcoins at an average price of $67,068.
This allocation indicated that rebuilding liquidity was temporarily prioritized over maximizing Bitcoin purchases. The strategy still expanded its holdings to 847,363 Bitcoins, purchased for approximately $64.01 billion at an average price of $75,651.
The cash injection was also accompanied by an increase in the number of shares. Strategy’s diluted shares totaled approximately 388.6 million shares, up from 386.1 million shares the previous week. Year-to-date BTC yield, a corporate index that measures the change in Bitcoin holdings relative to assumed diluted equity, fell to 11.8% from 13% four weeks ago.
A decrease does not mean that Strategy has fewer Bitcoins. This indicates that as the company issues more shares, its assumed Bitcoin holdings per diluted share are increasing more slowly.
The momentum could become even more pronounced if STRC remains well below $100. Common stock remains the strategy’s most readily available source of capital, as it becomes difficult to issue more preferred stock at unfavorable prices or requires higher dividends.
MSTR shareholders would then fund both the company’s Bitcoin purchases and the securities supporting the senior debt on its balance sheet.
Supporters of Strategy’s model dispute the conclusion that the company’s common stock sales weakened investors’ financial position.
Pro-Strategy analyst Adam Livingston said that despite issuing additional shares, the company added about 24,029 Satoshis of common stock Bitcoin exposure per basic share during the year.
Common Equity Bitcoin Exposure (CEBE) attempts to calculate the Bitcoin that belongs to common shareholders after deducting debt, preferred stock, and other senior obligations. Livingstone claimed that Strategy used the proceeds of the new shares to acquire enough Bitcoin to increase the net exposure supporting each underlying stock.
That doesn’t mean the issuance wasn’t diluted. After the new shares are sold, existing shareholders still own a smaller percentage of the company. Mr Livingstone’s argument is instead that the assets attributable to each share have increased sufficiently to offset the increase in the number of shares.
Livingston’s conclusion also differs from the decline in BTC yields reported by Strategy. This is because the two indicators use different methodologies. While the strategy’s metrics rely on assumed diluted equity, Livingston’s calculations use underlying equity and adjust Bitcoin holdings for preferred debt.
According to CEBE Tracker data, Strategy’s CEBE to net asset value multiple is approximately 1.15x, meaning MSTR continues to trade at a premium to the estimated net Bitcoin exposure attributable to public holders.
This premium remains at the heart of Strategy’s model. Proponents argue that new issuance can increase rather than destroy per-share exposure, as long as companies can issue more shares than the value of Bitcoin backing each common stock and use the proceeds incrementally.
The risk is that premiums shrink while cash needs and senior debt continue to rise. Although Strategy may still be able to raise capital under these circumstances, each transaction will likely create less incremental value for existing common stockholders.
Meanwhile, this market pressure is impacting MSTR’s price performance. MSTR has fallen below $100, its lowest level since March 2024, according to Yahoo Finance data.
Investors disagree on whether this model is broken.
CryptoQuant views the STRC discount as evidence that Strategy’s liquidity resources are not keeping up with its obligations. Benchmark analyst Mark Palmer expects the decline to be similar to the traditional yield adjustments investors seek.
Palmer rejected comparisons between STRC and failed stablecoins such as TerraUSD, pointing out that STRC is a perpetual preferred stock rather than an asset supported by an algorithmic peg. Strategy has said it intends to run STRC near $100, but that price is not guaranteed.
At approximately $87, the dividend is calculated at approximately 11.5% of the list price of $100, giving the buyer a market yield of over 13%. This suggests investors are demanding greater compensation for the strategy’s Bitcoin exposure, cash needs, and increasingly complex capital structure.
Benchmark maintained MSTR’s Buy rating and $570 price target, arguing that the rise in STRC volumes indicates aggressive repricing rather than structural deterioration. The company also pointed to Strategy’s Bitcoin vault, valued at approximately $55 billion at the prices used in the analysis, and the company’s continued ability to adjust dividends and raise capital.
Charles Edwards, founder of Capriol Investments, offered a harsher assessment. He said business models that rely on the continued appreciation of Bitcoin to support dividend and yield products will eventually become unsustainable.
He pointed out:
“As long as his business model requires Bitcoin to ‘go up’ in order to survive and pay yields and dividends, it’s a ticking time bomb. It may not be this cycle, but the music will stop.”
Edwards argued that Strategy should reduce its debt, unwind its yield products and return to holding less onerous Bitcoin positions. He also proposed acquiring a digital asset treasury company that trades at a deep discount to net asset value, and eventually building an operating business around Bitcoin lending, borrowing, and payments.
These proposals would come with major obstacles. Repaying Strategy’s debt may require it to sell Bitcoin, issue additional stock, or both. Entering lending also brings regulatory, credit, and counterparty risks beyond those of treasury companies that hold Bitcoin on their balance sheets.
Still, Edwards’ criticism captures a longer-term question facing the company: whether Strategies can continue to grow its capital structure without becoming increasingly reliant on rising Bitcoin prices and uninterrupted access to the stock market.
The competing assessments are not completely contradictory. A strategy may face a shortage of cheap liquid capital in the short term but still have sufficient assets to meet its obligations in the long term.
The company’s latest funding decision reflects that distinction. The strategy still had the potential to access the common stock market, but needed to direct most of the proceeds to rebuilding cash rather than accelerating Bitcoin purchases.
This tradeoff will define the next stage of Thaler’s experiment. Increasing the STRC dividend increases costs. Further sales of MSTR would dilute shareholders. If you sell your Bitcoins, you may incur a loss. Suspension of payments could undermine confidence in Strategy’s preferred stock franchise.
For now, the company is opting for cash and dilution, asking public shareholders to absorb the costs of keeping the Bitcoin funding machine intact.
(Tag Translation)Bitcoin
