Foreign media report that after Strategy’s STRC preferred shares continued trading below their $100 par value, the market has begun reassessing the company’s capital structure. Arca’s Chief Investment Officer, Jeff Dorman, believes that selling $3 to $4 billion in Bitcoin could be the most direct way to alleviate current pressures.
STRC fell below par value
On June 18, STRC dropped to $82.53 before recovering to close at $88.59, still significantly below par value. Dorman posted on X that this movement indicates investors are questioning the sustainability of the preferred stock arrangement, particularly regarding dividend obligations and subsequent financing costs.
Dorman proposes a coin selling plan.
Dorman believes that selling a portion of Bitcoin, while potentially suppressing the price in the short term, could buy Strategy more time and alleviate pressure on its capital structure. He assigns this scenario a 25% probability and states that it would not fundamentally alter the company’s long-term Bitcoin strategy.
However, he assesses that the more likely scenario is that Strategy will continue selling small amounts of MSTR shares to raise capital. He assigns this scenario a 70% probability but believes such financing terms are unfavorable to existing shareholders.
Dividends and financing costs attract attention
Concerns surrounding the Strategy financing model have recently intensified. Previously, Peter Schiff accused the company’s co-founder Michael Saylor of downplaying the associated risks when promoting STRC, particularly for investors seeking yield.
Schiff believes that if risk disclosures are inadequate, some retirement and income-focused investors may consider legal action. He also warns that if STRC remains below par for an extended period, investors may demand higher yields in future financing rounds, further increasing the company’s financing costs.
Dorman also mentioned an extreme scenario with only a 5% probability, in which the company ceases payment arrangements related to preferred securities. He viewed this option as a last resort, reflecting growing market concerns over the burden of dividend payments.
QCP mentions liquidity tenor
The market maker QCP previously raised concerns about Strategy’s liquidity. QCP estimated that the company’s current available liquidity could only support dividend payments on preferred shares for about seven and a half months. If the attractiveness of existing financing channels continues to decline, the company may ultimately need to seek alternative sources of funding, with the sale of Bitcoin becoming one potential option.
In terms of valuation, Dorman believes Strategy's current stock price remains high. He calculated that the company holds approximately $35.2 billion in unrestricted Bitcoin-backed assets, while MSTR's equity market capitalization is around $40.4 billion, representing a price-to-book ratio of approximately 1.15x.
According to this perspective, he believes MSTR should trade below its net asset value. If the price of Bitcoin does not rebound significantly, the stock price may continue to face downward pressure; even if Bitcoin recovers, further upside will depend on the company’s ability to avoid additional dilution, including from dividends, asset sales, or new financing.