Michael Saylor-led Strategy sold an additional $263.5 million in common stock last week, but the company used the proceeds to expand its cash reserves rather than increase its Bitcoin holdings.
The Tysons Corner, Va.-based company issued 2.73 million Class A shares between July 13 and July 19, but reported no sales through any of its four preferred stock offering programs, according to a July 20 SEC filing.
The transaction increased Strategy’s designated US dollar reserves by $225 million to $3.225 billion.
The strategy did not purchase any Bitcoin during the period, extending the purchase suspension period for four consecutive weeks, leaving its holdings at 843,775 BTC.
This change also pushed Bitcoin’s quarter-to-date performance metrics into negative territory, as the number of common shares increased without a corresponding increase in the company’s crypto balances.
STRC discounts prioritize cash compensation
This reserve increase reflects Strategy’s efforts to strengthen its preferred stock business, which is expected to generate approximately $1.76 billion in annual dividend and interest expense.
The reserve is approximately $3.2 billion and will cover approximately 22 months of these payments, significantly exceeding the 12-month minimum established under the policy approved by the company’s board of directors in June. The fund had nearly $3 billion before selling common stock last week.
Some of that cash is intended to support Stretch (STRC), the flagship security in Strategy’s expanding preferred stock lineup.
STRC has a nominal value of $100 per share and currently pays a 12% annual variable dividend. It has been trading below that level since mid-May and has recently hovered around $87 after falling to about $75 in late June.
Larger reserves provide preferred holders with greater assurance that Strategy can continue to meet its obligations during periods of declining Bitcoin prices or low security prices that make additional issuance more costly.
Dylan Leclair, Bitcoin strategy executive at Japanese financial firm Metaplanet, said Strategy’s recent common stock sale and cash accumulation are aimed at restoring funding channels.
He said a recovery in preferred securities could narrow credit spreads, return to a price where management is willing to issue more shares, and revive the capital markets engine that Strategies has been using to fund its Bitcoin purchases.
Strategy’s BTC purchase pattern breaks down
Efforts to repair Strategy’s preferred stock financing channel disrupted the Bitcoin accumulation cycle that made it the world’s largest asset holder.
According to the company’s data, the last Bitcoin purchase was on June 22, when he acquired 520 BTC for approximately $35 million, at an average price of $67,068. This purchase increased his holdings to 847,363 BTC at the time.
However, the strategy reversed course the following week, selling 3,588 BTC for approximately $216 million between June 29 and July 5. This transaction reduced the amount held to 843,775 BTC, which he still holds today.
The remaining positions were acquired at approximately $63.7 billion, or an average of approximately $75,476 per Bitcoin. At recent market prices, the holdings are worth about $54 billion, meaning Strategy has unrealized losses of more than $9.4 billion.
The company has now gone four weeks without making any stock purchases, even as it continues to issue common stock and build up dollar reserves. This marks an unusual departure from a model in which profits collected from shareholders were often converted into Bitcoin immediately after the loan ended.
Last week’s $263.5 million common stock sale followed another issuance that raised more than $460 million in the previous reporting period.
These transactions increased Strategy’s share count but did not change its Bitcoin holdings.
Key Bitcoin indicators of strategy turn negative
This trade-off is now evident in a proprietary metric that Strategy uses to assess whether financing activities increase the Bitcoin exposure of public shareholders.
The company reported a quarter-to-date BTC yield of -2.3% and a BTC gain of -19,247 BTC. Bitcoin’s appreciation against the dollar during the quarter also fell to -$1.2 billion.
However, the corresponding year-to-date numbers remained positive. Strategy reports a BTC yield of 5.8%, BTC profit of 39,325 BTC, and BTC dollar profit of approximately $2.5 billion, indicating that the deterioration is concentrated in this quarter.
BTC Yield measures the percentage change in the ratio between Strategy’s Bitcoin holdings and its assumed diluted number of shares outstanding. BTC Gain applies the changes to the company’s Bitcoin balance, and BTC Dollar Gain converts the results into dollars using prevailing market prices.
This metric is not accounting profit or traditional investment return. These are intended to indicate whether Strategy’s capital markets activities have increased or decreased the amount of Bitcoin attributable to each diluted share.
This ratio declined after Strategies issued more than 7.5 million common shares in the past two weeks without increasing its Bitcoin holdings. The number of shares increased while the company’s crypto balance remained fixed at 843,775 BTC.
Supporters of the Strategy’s model argue that the decline in official metrics overestimates the economic impact because the calculations do not fully capture the value of cash added to balance sheets.
Strategy-focused analyst Adam Livingston estimated that last week’s issuance was largely neutral for existing shareholders, as measured by the Common Equity Bitcoin Exposure (CEBE) metric.
Livingston calculated that the common stock Bitcoin exposure decreased by approximately 0.074%, counting only the $225 million added to designated reserves. This represents a loss of approximately 107 satoshis per existing share, or approximately $25.7 million on a prior share basis.
However, when the full $263.5 million of net income was included, the results changed. Based on this calculation, the transaction was approximately 0.036% accretive, adding approximately 52 SATOSHI per existing share.
He said the difference was due to $38.5 million in revenue that was not included in the designated reserve increase report. The strategy does not disclose whether the funds remain elsewhere as cash, reflect the timing of settlement, cover expenses, or be allocated to another category on the balance sheet.
Mr. Livingston estimated that Strategy would need approximately $250.9 million in economic value from the issuance to maintain its common equity Bitcoin exposure. Total revenue exceeded that threshold, but the amount allocated to reserves was below that threshold.
Therefore, he argued that his calculations would result in a trade closer to neutrality with either approach, rather than indicating the significant dilution implied by the fall in total Bitcoin per share.
However, this does not change the direction of the metrics that Strategy reports. Despite the new cash increasing its ability to meet preferred dividends and debt interest, BTC yield and BTC gains declined as the company issued common stock without increasing its Bitcoin balance.
Therefore, Strategy has increased the protection of its capital structure at the expense of short-term Bitcoin per share growth.
Whether the quarterly decline is reversed will depend on how quickly the company can restore its preferred stock funding route and direct new capital toward Bitcoin purchases.
(Tag translation) Bitcoin
