Introduction: As Michael Saylor continuously increases the company’s exposure to Bitcoin through tools like STRC, a seemingly efficient financial structure simultaneously accumulates dividend pressure and potential risks. In the short term, it drives capital inflows and price appreciation; but should market conditions shift, this mechanism, reliant on continuous financing, could rapidly turn against the company itself. This article examines this structure, aiming to map its operational limits under extreme scenarios and potential cascading effects.
The following is the original text:
Through STRC, Saylor created a "Frankenstein's monster."
Victor Frankenstein, out of arrogance, created this monster—he was confident he could play God and defy death. But after the monster destroyed his family and friends one by one, it ultimately dragged him into destruction as well.
Through STRC, Saylor designed an "idealized" BTC-linked instrument that allows retail investors to capture bitcoin's excess returns in a manner similar to a "risk-free rate." It is precisely this financial engineering capability that enabled him to claim unprecedented Sharpe ratios and 11.5% returns with just a 1-point fluctuation—but ultimately, this mechanism could also turn around and overwhelm MSTR.
Note: The following analysis is based on the assumption that BTC will remain range-bound or decline. If BTC achieves a compound growth rate of more than 20–25% as outlined in the Strategy, many of these assumptions will no longer hold (though not all will be invalidated).
In just the past two weeks, STRC has attracted nearly $3.5 billion in capital inflows, bringing its total issued size to $8.5 billion. Including Strategy’s other senior instruments, the current outstanding scale is approximately $13.5 billion (excluding convertible bonds). These funds have supported the purchase of an equivalent amount of BTC and were likely a primary driver behind last week’s price surge to $78,000; however, they also create an annual dividend obligation of approximately $400 million.
Previously, Saylor maintained a dividend reserve of approximately $2.25 billion. Before this round of issuance in April, this reserve was sufficient to cover about 25 months of dividends. However, recent issuances over just the past two weeks have reduced the coverage period to 18 months. To restore the reserve to a 25-month coverage level, he would need to raise approximately $500 million through ATM (at-the-market) offerings.
Currently, MSTR’s mNAV has retreated to the range of 1.25–1.30 times its yearly high, prompting the crypto community (CT) to once again call for large-scale BTC purchases this week. However, the issue is that I believe approximately 50–70% of this week’s new issuance will be used to replenish dividend reserves rather than directly purchase BTC.
More thought-provoking is STRC’s performance under “extreme scenarios.” Currently, MSTR’s market capitalization is approximately $55–60 billion. The real question is: how much STRC can Saylor issue before dividend obligations place substantial pressure on mNAV?
A simple estimation is that the annual issuance volume can be kept within 1–2% of MSTR’s average daily volume (ADV). Based on a current daily trading volume of approximately $2–3 billion and 252 trading days per year, this translates to an issuance capacity of roughly $5–15 billion—equivalent to 3–10 times the current annual dividend or coupon payout.
However, I am more inclined to view this range as representing an "upper bound" rather than a normal level. In fact, for shareholders holding only common stock, the structural cost of this transaction is already becoming apparent: STRC’s success is suppressing MSTR’s mNAV—whereas during the trading range since 2023, this metric was closer to 1.5x (though one could also argue that the current environment is more akin to mid-2022).
On the surface, it may seem irrational for common shareholders to continue supporting these "yields" that do not translate into direct upside gains for them—especially since, under continuous issuance, the amount of BTC held per share has not materially increased (a situation largely due to the sheer size of the Strategy itself).
That said, DAT shareholders themselves are a rather "special" group; I can imagine they can still withstand this pressure and may not shift this perspective at least over the next year.
In addition, the above analysis implicitly assumes that MSTR will maintain a price above 1x mNAV in the foreseeable future. If it falls below 1x, Saylor’s sale of BTC would result in less shareholder dilution than issuing additional shares. This would open the floodgates of supply, pushing the market into a phase dominated by downward DAT reflexivity—a scenario I discussed last year (see original post).
Summarize this logic chain briefly:
STRC continues to expand;
As the scale grew, Saylor needed to pay increasing dividends;
Buyers of MSTR are gradually realizing that the shares they purchased are funding dividends rather than increasing BTC holdings;
The buyer discovered that this was not the transaction structure they originally anticipated and began to withdraw;
Once there is a lack of new buying pressure, the mNAV falls below 1x;
mNAV < 1x → Saylor must sell BTC rather than continue issuing shares;
The market has entered a state of panic.
In my view, the correct way to determine the maximum supply of STRC is to identify a "tipping point": where the dividend burden from new issuances begins to exceed the marginal benefit of BTC growth per share. Based on a rough estimate, this tipping point corresponds to approximately $3–4 billion in annual dividend payouts, equivalent to reissuing around $10–20 billion in STRC. At the current pace, this threshold could be reached within six months.
Of course, Saylor still has room to maneuver. Dividend reserves do help stabilize prices and market confidence, but if volatility or a downward trend persists, holders are essentially playing a game of "hot potato." When dividend reserves drop to just six to nine months’ worth, the rational choice may become exiting early at the 90–95 price range rather than risking further downside from Saylor pausing dividends—an alternative he still has.
Although STRC’s dividends are "cumulative," in extreme scenarios, I believe Saylor is more likely to choose to "completely sacrifice preferred stock credibility" rather than be forced to sell large amounts of BTC. Fundamentally, he is faced with this arithmetic equation: "How much more BTC can I buy if I fulfill preferred stock obligations and forego future issuance potential" minus "The amount of BTC I must sell to maintain the preferred stock" equals the result.
If the result is positive, choose to sell BTC; otherwise, "sacrifice" the preferred shareholders.
The main argument against this judgment is that by the time you reach the stage where this calculation is necessary, the market has likely already shifted, and MSTR’s mNAV has probably fallen below 1x.
Thank you for reading, even if the beginning was a bit sensational. Any differing opinions or feedback are welcome. (Special thanks to @TraderBot888, the first person to discuss this idea with me.)
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