Strategy issued $50 million in preferred stock to fund its latest Bitcoin purchase, leaving common shareholders undiluted even as the company’s market cap approaches a crucial threshold, as indicated in a blog post on Monday.
The company, led by billionaire Michael Saylor, was recently valued at $71 billion, reflecting a 1.06x premium to its $67.8 billion Bitcoin holdings. The premium, often called mNAV (multiple of net asset value), was close to the lowest level in twenty months.
Last week, Strategy sold a combination of preferred shares, which requires the world’s largest corporate Bitcoin holder to make dividend payments. The sale consisted primarily of Series A perpetual floating rate preferred stock valued at $26 million.
Historically, Strategy issues common stock to increase Bitcoin reserves. However, this strategy has become less effective for the company to increase the amount of Bitcoin it owns per share as its net asset value (mNAV) has fallen from 2.7x a year ago.
Also last week, Strategy added 397 bitcoins to its corporate treasury. The purchase, worth $50 million, brought Strategy’s shares to almost 641,700 Bitcoins.
Strategy stocks fell 0.68% to $237.25 on Monday, according to Yahoo Finance. Bitcoin was trading around $105,570, up 1% over the past day, according to the exchange rate. Portal do Bitcoin.
On Saturday, investor James Chanos, a short sales specialist, said he had canceled an operation betting on a decline in Strategy’s premium. The Wall Street veteran did not disclose the size of the position or the profits made, but said he started it about a year ago.
By betting on Bitcoin rising and Strategy’s stock falling, Chanos was not betting against Bitcoin’s price, but rather that Strategy’s sky-high net asset value (mNAV), recorded a year earlier, would be temporary.
“The premium should continue to decline over time as MSTR continues to issue common shares, but we recommend others take advantage of this opportunity as MSTR inevitably moves toward a multiple of 1.0x its net asset value,” according to a note shared by Chanos on X.
This year, Strategy sought to adjust its stance on common stock issuance to convey discipline. And last month it went several weeks without any common shares being issued.
In a recent note, TD Cowen analyst Lance Vitanza said Strategy’s premium and capital issuance should accelerate in the first half of this year, adding that dynamics would be “consistent with previous cycles.”
Last week, Strategy announced that it expects to raise $715 million in the debut of its first euro-denominated preferred shares. The transaction is scheduled for Thursday, after which the product will debut on the Luxembourg markets.
If Strategy were to invest these funds in Bitcoin, it would be the company’s largest purchase since it spent $2.46 billion on the assets in mid-July. Thomas Perfumo, global economist at cryptocurrency exchange Kraken, noted to Decrypt that Strategy’s acquisitions have had less impact on markets.
“The slowdown in Bitcoin flows is a major factor affecting the current market direction,” he said on Friday. “Demand from treasuries for digital assets like Strategy, which supported cryptocurrency prices over the summer, is easing.”
*Translated and edited with permission from Decrypt.
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