Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Strategy, a prominent Bitcoin-buying firm, recently funded its latest $50 million Bitcoin acquisition by issuing preferred stock, a strategic shift that avoids diluting common shareholders. This move comes as the company’s market capitalization premium over its Bitcoin holdings has tightened to near a 20-month low, according to a blog post released Monday.
Capital Strategy Shift
The Tysons Corner, Virginia-based firm was valued at $71 billion, reflecting a 1.06x premium against its $67.8 billion Bitcoin stockpile. This multiple-to-net asset value (mNAV) has significantly compressed from 2.7x a year ago. Last week, Strategy added 487 Bitcoin, increasing its total holdings to nearly 641,700 Bitcoin, with the latest purchase valued at $50 million.
Historically, Strategy has relied on issuing common shares to expand its Bitcoin reserves. However, this method has become less effective in growing the amount of Bitcoin per share as the mNAV has declined. The recent sale involved primarily Strategy’s Variable Rate Series A Perpetual Stretch Preferred Stock, totaling $26 million.
Short Seller Exits Position
The tightening premium coincides with veteran short seller James Chanos announcing on Saturday that he had closed his position betting against Strategy’s premium. Chanos, who entered the trade approximately a year ago, clarified that his bet was not against Bitcoin’s price but rather on the expected compression of Strategy’s “sky-high mNAV.”
Chanos stated that while he believes the premium should continue to compress as Strategy issues common equity, he recommended allowing others to pursue that trade as the company “inevitably marches towards a 1.0x mNAV.” Strategy has attempted to demonstrate discipline in its common share issuance this year, including a period last month without issuing new equity.
Analyst Outlook and Future Plans
Lance Vitanza, an analyst at TD Cowen, anticipates an acceleration in Strategy’s premium and capital issuance during the first half of this year, aligning with historical cycles. Furthermore, Strategy announced last week it expects to raise $715 million from its inaugural euro-denominated preferred share offering, set to debut Thursday in Luxembourg.
If these funds are fully deployed into Bitcoin, it would mark Strategy’s largest single purchase since its $2.46 billion acquisition in mid-July. Bitcoin was trading around $105,400 on Monday, up 2% over the past day, while Strategy shares fell 0.3% to $241.
Market Impact Observations
Thomas Perfumo, global economist at crypto exchange Kraken, observed that Strategy’s acquisitions are now having less impact on market movements. He noted that a deceleration in demand from digital asset treasuries, like Strategy, is a significant factor influencing the market’s current direction.
Key Takeaways
Strategy’s shift to preferred stock for Bitcoin acquisitions signals an evolving capital strategy aimed at managing shareholder dilution amidst a compressing market premium. The company’s continued pursuit of Bitcoin, alongside market observations of its diminishing impact, highlights a maturing dynamic in how corporate treasuries influence cryptocurrency markets.
