Saylor has encouraged his followers to invest in Bitcoin, take out mortgages on their homes, and even “sell a kidney.” Supporters refer to him as a visionary with financial prowess, whereas critics label him a flamboyant addict. He has transformed a small software business into the largest corporate holder of Bitcoin globally, trading with a level of confidence that many CEOs do not possess.
Saylor confidently intends to build a $75 billion Bitcoin military reserve utilizing permanent preferred shares rather than stock and convertible bonds. They offer flexibility for issuers, yet pose risks for investors as they lack maturity and might forgo dividends. The current offering, “Stretch,” provides varying dividends and does not include voting rights. While neither debt nor common equity, Saylor anticipates this entity will offer liquidity for acquiring Bitcoin without diluting investors. To maintain his business, he suggests retiring billions in convertible notes, cutting back on common stock sales, and issuing more preferred offers over a four-year period. The “BTC Credit Model,” designed to back income products using a volatile asset, carries significant risk. He predicts that demand might rise by $100–200 billion. Strategy, or MicroStrategy, can be compensated without buyers. Saylor’s steadfast belief in the value of currencies complicates the sale of Bitcoin.
The corporation successfully raised $6 billion. The 2.5 billion “Stretch” tranche surpassed Circle’s flagship IPO as this year’s largest crypto capital offering. According to a business presentation, retail buyers acquired more than 25% of the deal, highlighting Saylor’s commitment to financing. “I have no past knowledge of any company doing this the way that MicroStrategy has just to capitalize on the retail fervor,” said Michael Youngworth, Bank of America’s global convertibles and preferred strategy head. Retail stands out, yet banks and investment-grade utilities lead the corporate preferred markets. Strategy CEO Phong Le stated that the adjustment will enhance the company’s capital structure following the “crypto winter” of 2022, during which it had a Silvergate Bitcoin-backed loan and additional debt. As convertible notes might not be an option, we will utilize perpetual preferred notes that do not have a maturity date.
According to the idea, Bitcoin, which generates no revenue and has lost half its value in months, pays massive, permanent dividends. The company could face significant expenses and delayed financing if Bitcoin prices drop and investor enthusiasm wanes. Certain perpetual preferred dividends may be postponed without constituting a default. Non-cumulative dividends can be distributed in cash or shares, meaning that the strategy does not need to compensate for any missed payments. Saylor will postpone but not stop the sale of ordinary shares for dividends. The corporation might offer shares at a price lower than 2.5 net asset-value to address debt or preferred dividends. Permanent preferreds maintain shareholder value and do not necessitate repayment, in contrast to convertibles. The strategy’s nuanced benefit of offloading shares at a price higher than Bitcoin is essential. Saylor referred to the difference as the “mNAV premium”—a multiple of net asset value—aimed at raising funds and acquiring Bitcoin at a lower cost.
“With their mNAV premium compressing in recent weeks, I think management is rightfully concerned about creating too much dilution,” stated Clear. High-stakes financing strategy. “These are high-yielding instruments,” Youngworth remarked. “Paying 8% to 10% coupons forever could be difficult.” Organizations that generate minimal revenue beyond security sales could face liquidity issues in the event of a Bitcoin crash. According to short seller Jim Chanos, prolonged, non-redeemable, non-cumulative preferreds with issuer-determined payouts are “crazy.” Unpaid dividends do not accumulate. “I owe them nothing,” he told in June. Chanos believes that the preferred initiative can enhance Strategy’s stagnant leverage. He suggests shorting the stock and buying Bitcoin to reduce premiums. The units sit above stocks but below convertible bonds, which do not offer debt protection. Market-neutral trades simplify the hedging of convertible bonds, which is why they are favored on Wall Street. While convertibles can occasionally serve for arbitrage purposes, hedging preferences proves to be more challenging.
For the strategy to succeed, Bitcoin needs to be both valuable and trusted. Bitcoin could potentially serve as standard financial collateral if his predictions hold true. If he’s mistaken, his balance sheet will reveal the consequences when the market stops having faith in the income generated by high-risk assets. Market conditions that are fraught with risk could threaten the stability of digital-asset treasury enterprises. “I think there are some indications of a bubble in crypto treasury companies,” stated Rutgers Law School Blockchain and Fintech Program head Yuliya Guseva. “If market appetite dries up, model fails.”