MicroStrategy Buys $250M in Bitcoin, Calling the Crypto ‘Superior to Cash’

[Free Market Capitalist]

Something that caught me off guard is the reduction on the ringfenced reserve for dividend payout. I tought it were to be preserved at 22 months, and I actually based my computation off this. The reality is the reserve was lowered to 18 months.

Really? The more STRC he sells through the ATM, the higher the dividend payout becomes; consequently, the reserve decreases in terms of months of coverage (even though the cash amount remains the same). That's the logical consequence of selling more and more STRC through the ATM.
 

If Saylor raises the coupon this reserve can deplete faster. So keep an eye on this measure.

The reserve can keep decreasing in terms of months coverage even if he lowers de coupon or mantains it as long as he keeps selling new STRC shares through the ATM.

[fillippone]

Really? The more STRC he sells through the ATM, the higher the dividend payout becomes; consequently, the reserve decreases in terms of months of coverage (even though the cash amount remains the same). That's the logical consequence of selling more and more STRC through the ATM.
 

When I did my back of the envelope calculations on last weekend trying to predict the amount of Bitcoins will be announced by Strategy, I fell short of the actual amount, 32k vs 34, because I accounted for  part of the proceeds set apart to preserve the 22 month worth of dividends. They indeed decided to go more aggressive.
Mixed feeling here, yes they depleted the dividend reserve, but as well they leaned their operational overhead, just to quote John Carvalho.

[fullfitlarry]

https://x.com/BitcoinArchive/status/2046672824257978412

Vanguard is doesn't like to "buy Bitcoin directly", but they love the company that buys Bitcoin.

[Free Market Capitalist]

I’ve been thinking that, given the current situation, there doesn’t seem to be a middle ground when it comes to Strategy. If we really think about it, the fact that he bought 34,000 bitcoins last week in the middle of a bear market makes you wonder how many he could buy in a good week if the price keeps rising and market sentiment turns more bullish. 100,000?

So, I think that with the STRC ATM, he can at least mitigate a main problem his buying strategy had: raising a lot of funds to buy when the price hits new highs and little to nothing during a bear market.

But the problem with selling more and more STRC at the ATM is that the need to raise cash to pay the dividend increases.

So, I think Saylor’s bet will have only two possible outcomes. Either the long-awaited supply shock occurs and the price of Bitcoin skyrockets in a relatively short time, or he’ll end up going bankrupt if there comes a point where he can’t raise cash to pay the dividends.

[BlackHatCoiner]

But the problem with selling more and more STRC at the ATM is that the need to raise cash to pay the dividend increases.

The cost of the dividends is $1.5 billion per year. He raised $2.5 billion in a week. I don't feel like there's a problem here.

Either the long-awaited supply shock occurs and the price of Bitcoin skyrockets in a relatively short time, or he’ll end up going bankrupt if there comes a point where he can’t raise cash to pay the dividends.

If bitcoin continues to grow by 20-30% CAGR, then his company not only survives but thrives, and Bitcoin would not have to skyrocket. I don't understand how he can go bankrupt by the dividend obligations when they represent ~2.5% of the total underlying asset value.

[Free Market Capitalist]

The cost of the dividends is $1.5 billion per year.

The present cost of dividends is $1.5 billion per year. Not so long ago it was about half that. And it keeps growing.

He raised $2.5 billion in a week. I don't feel like there's a problem here.

He raised $2.5 billion during the record-breaking week so far. There have been weeks when he hasn’t raised any money, and other weeks when the price of the preferred has fallen quite a bit.

If bitcoin continues to grow by 20-30% CAGR, then his company not only survives but thrives, and Bitcoin would not have to skyrocket. I don't understand how he can go bankrupt by the dividend obligations when they represent ~2.5% of the total underlying asset value.

First, as of today, Bitcoin CAGR for the past 5 years is 9%. And I’m talking about the last five years because it’s a metric Saylor used to mention a lot when it suited him – when he was at 50% – but he doesn’t talk about it anymore.

As I said before, dividend payments aren’t a fixed figure; they continue to grow. Furthermore, dividends aren’t paid out based on assets, but on profits. A company that has a lot of assets but has been making losses for several years will reduce its dividend, and more often than not, suspend it altogether. What he’s doing is paying dividends based on unrealised profits that he doesn’t have, in the hope that he will have them in the future.

The assets are supposed to cover the principal, not the dividends. In order, they cover STRF, STRC, STRK, STRD and MSTR, not the dividends paid by the preferred shares. If, hypothetically, there were to be a bankruptcy, that would be the order of priority for repayment.

What will he do if, at some point, he can’t raise cash by selling STRC to pay dividends? Sell Bitcoin? That would cause a price crash. Suspend the dividend? More of the same.

We agree that if the price of Bitcoin goes his way, he’ll come out on top, but it could also go very badly for him and he could go bankrupt.

[BlackHatCoiner]

From what I can verify in here, the CAGR of the past 5 years, as of today, is indeed really small. But, if you calculate the average CAGR across many months of 2020-21 and 2025-26, it is 46%.

There seems to be a pattern where the CAGR declines as we move into the future. But this is Bitcoin, and Bitcoin breaks all models and patterns we've seen so far (apart from the Power Law maybe?), so we can't be sure about anything.

Will the average be 46% for years 2022-2027 or 2023-2028? I don't know. But it sounds very bearish to not be at least 12%, which are the dividends.

Edit:

What will he do if, at some point, he can’t raise cash by selling STRC to pay dividends? Sell Bitcoin? That would cause a price crash. Suspend the dividend? More of the same.

I believe the answer to this is that he will eventually suspend the dividend.

[fillippone]

But the problem with selling more and more STRC at the ATM is that the need to raise cash to pay the dividend increases.

It shouldn't be too difficult for them to use part of the ATM proceeds to build a corresponding dividend reserve.
This is what I would do: a well-preserved dividend reserve would have a greater reassuring power than a gargantuan amount of bitcoin in its possession, in my humble opinion.
Apparently, this line of thought is not shared inside Strategy.

[Free Market Capitalist]

But it sounds very bearish to not be at least 12%, which are the dividends.

Well, the problem with Strategy, at least so far, is that its purchases have yielded a much lower CAGR than Bitcoin’s, since it bought a lot when the price was high and little or nothing when it dropped. This could change with STRC, but for now, 12% wouldn’t be enough—it would have to be higher.

But I wanted to mention something else. Deep down, I hope Saylor does well, that he triggers a supply shock, and that the price goes way up, because I’m HODLing Bitcoin and I’ll benefit from that rise. I imagine you share that sentiment. But for someone as concerned about privacy as I’ve seen you in many of your posts, doesn’t the fact that Strategy is accumulating so much Bitcoin seem counterproductive to you? The Bitcoin they buy isn’t for P2P, and everyone who buys Strategy products—which are like a derivative exposure to Bitcoin—is KYC-compliant. The more Bitcoin they accumulate, the less Bitcoin is available for peer-to-peer exchange.

Anyway, I suppose there’s nothing we can do about this, and besides, no one is holding a gun to the head of the individual selling Bitcoin that Strategy ends up buying.

It shouldn't be too difficult for them to use part of the ATM proceeds to build a corresponding dividend reserve.
This is what I would do: a well-preserved dividend reserve would have a greater reassuring power than a gargantuan amount of bitcoin in its possession, in my humble opinion.
Apparently, this line of thought is not shared inside Strategy.

The problem with that is that it is dilutive. If they sell MSTR via an ATM to boost their cash reserves, they’re diluting the Bitcoin per share, but they’ve done it before, so they could do it again. It would make more sense to do this with STRC sales, but it’s weird, to say the least. I sell STRC, which pays a high dividend, and I keep the cash from your purchase as a reserve to pay you the dividend. But that’s actually how the system is set up. If reserves drop significantly in terms of months coverage, I think they’ll have no choice but to set aside more cash one way or another but it will probably be with the STRC ATM.

[BlackHatCoiner]

Anyway, I suppose there’s nothing we can do about this, and besides, no one is holding a gun to the head of the individual selling Bitcoin that Strategy ends up buying.

And also, it does seem quite irrelevant to me. A P2P transaction needs two people to take place. As long as there is demand to evade the KYC-ed environment, there will be people trading peer-to-peer.

I see Strategy more as the proxy for the institutional funds to enter Bitcoin. We cannot seriously believe that Bitcoin will reach $1 million+ with most trillions of dollars having no exposure to it.

[ultrloa]

But the problem with selling more and more STRC at the ATM is that the need to raise cash to pay the dividend increases.

It shouldn't be too difficult for them to use part of the ATM proceeds to build a corresponding dividend reserve.
This is what I would do: a well-preserved dividend reserve would have a greater reassuring power than a gargantuan amount of bitcoin in its possession, in my humble opinion.
Apparently, this line of thought is not shared inside Strategy.

Yeah it could really give something like assurance to investor rather than just having large Bitcoin holdings, since somehow this give great signal for a great commitment to the returns of their share holders and also discipline. While having just a huge Bitcoin holdings show only conviction on their investment on that coin.

It seems that Strategy prefer to showcase their strength on having lots of Bitcoin, but having that reserve would be stabilizing move from them and also this is traditional action done by some institutions.

[Ambatman]

"I totally agree with you. Security is the biggest concern when dealing with such a massive amount ($250M). Handling self-custody for a public company involves huge regulatory and operational risks. It's most likely they are using a professional institutional custodian like Coinbase Custody or Fidelity, even if they haven't explicitly named them yet."

This is why it's adviced to look before you leap
You just responded to a post of 6 years
And calling $250M massive now when talking about strategy is quite funny.

It shouldn't be too difficult for them to use part of the ATM proceeds to build a corresponding dividend reserve.
This is what I would do: a well-preserved dividend reserve would have a greater reassuring power than a gargantuan amount of bitcoin in its possession, in my humble opinion.
Apparently, this line of thought is not shared inside Strategy.

They already created and are creating cash reserve
They did quite a bunch when Bitcoin started performing poorly.
They have above $2 Billion in cash reserve.
But with the rate the demand is going I guess such an amount would be unsustainable in the long run
And would need to be increased.



It would have been niced if dividends and payouts were measured in Bitcoin.
Like fixed and not by value of the dollar but that has it's drawbacks.

[fillippone]

This week, there were  no purchases trough STRC ATM:



At this point, after the excitement over last week, the only hope is for MSTR ATM. This is a possibility, as the mNAV is 1.25.

[Free Market Capitalist]

"I totally agree with you. Security is the biggest concern when dealing with such a massive amount ($250M). Handling self-custody for a public company involves huge regulatory and operational risks. It's most likely they are using a professional institutional custodian like Coinbase Custody or Fidelity, even if they haven't explicitly named them yet."

You're such a terrible AI spammer that you forgot to remove the quotation marks when you pasted the text copied from ChatGPT. You've earned another tag from me.

This week, there were  no purchases trough STRC ATM...

At this point, after the excitement over last week, the only hope is for MSTR ATM.

That’s why I said in a previous comment that we shouldn’t use the week when the record was broken with the STRC ATM as the reference point.

[cocadalcan]

This week, there were  no purchases trough STRC ATM:

Michael Saylor is likely going to buy more Bitcoin in bulk. He has provided that hint.


https://x.com/saylor/status/2048388043229270250?s=20

[Taskford]

This week, there were  no purchases trough STRC ATM:

Michael Saylor is likely going to buy more Bitcoin in bulk. He has provided that hint.


https://x.com/saylor/status/2048388043229270250?s=20

And Saylor already announce their latest big purchase again.

See their latest post https://x.com/saylor/status/2048734485219602740



This another huge purchase they made create lots of noise in social media now. Lots of crypto social media pages are spreading this news like wild fire. It seems that lots of people will get hype with this latest purchase they made.

[Free Market Capitalist]

This week, there were  no purchases trough STRC ATM:

You were right, this week's purchase was funded exclusively by MSTR shares sold through the ATM offering.

This another huge purchase they made create lots of noise in social media now. Lots of crypto social media pages are spreading this news like wild fire. It seems that lots of people will get hype with this latest purchase they made.

Lol, it was a pretty average buy for Strategy.

[sergiorus]

Lol, it was a pretty average buy for Strategy.

Average buy for Microstrategy - maybe, but still huge for the flat illiquid market. Yet the price once again didn't react.

[ultrloa]

Lol, it was a pretty average buy for Strategy.

Average buy for Microstrategy - maybe, but still huge for the flat illiquid market. Yet the price once again didn't react.

We can't expect the market to react on each purchase they made, since market is much bigger compare on the volumes they accumulate.

But still those announcement they made is great, because it will increase the confidence of people to continue to support Bitcoin.

As of the moment I'm interested to follow their tracks then see them reach another great milestone, which is to became the first company that holds 1 million Bitcoins.

[sergiorus]

Lol, it was a pretty average buy for Strategy.

Average buy for Microstrategy - maybe, but still huge for the flat illiquid market. Yet the price once again didn't react.

We can't expect the market to react on each purchase they made, since market is much bigger compare on the volumes they accumulate.

But still those announcement they made is great, because it will increase the confidence of people to continue to support Bitcoin.

As of the moment I'm interested to follow their tracks then see them reach another great milestone, which is to became the first company that holds 1 million Bitcoins.

From a single purchase - of course not. But continuous large purchases should have been a positive sign for the market but they weren't.
Sometimes I think it's not even a good thing that a suit with a *not-so-flawless* reputation managed to accumulate such a big share of circulating Bitcoins.