Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Strategy’s recent decision to issue a substantial amount of new stock to acquire more Bitcoin has sparked concerns among investors regarding potential share dilution and the company’s funding strategy. The move follows a rapid shift in the firm’s equity policy, with a significant increase in capital raised through stock sales in a short period, drawing scrutiny from market watchers.
Rapid Shift in Equity Policy
Reports indicate that Strategy altered its public guidance on August 18, swiftly moving to issue a large volume of new stock within days. CryptoQuant analyst JA Maartunn highlighted a pattern of escalating issuance, from no fresh stock on August 3, to approximately $18 million on August 10, $51 million on August 17, and then nearly $360 million raised in a single week after the guidance change.
This sharp increase in capital generation has led to worries that the company is increasingly relying on share issuance to finance its Bitcoin purchases. The new policy links stock sales to the company’s market net asset value (mNAV), which compares its share price to the value of its Bitcoin holdings.
New Rules for Stock Sales and mNAV
Under the revised framework, Strategy will sell a large number of shares to buy more Bitcoin if its stock trades at more than four times its mNAV. If the stock trades between 2.5 and four times mNAV, share sales will be conducted more carefully.
Conversely, if the stock drops below 2.5 times mNAV, share sales would primarily be directed towards debt repayment or dividend coverage, rather than Bitcoin acquisitions. Reports also suggest that if Strategy shares trade under 1x mNAV, the company could borrow funds to repurchase stock.
This new framework notably reversed an earlier commitment not to sell shares for Bitcoin purchases when the mNAV was below 2.5x. Critics have pointed to this reversal as a key element driving current investor unease.
Financing the Latest Bitcoin Acquisition
According to the company’s SEC filing, the latest Bitcoin purchase was financed through various means. Nearly $310 million was raised from at-the-market common stock sales at an average share price of $354, complemented by approximately $47 million from preferred share classes.
In total, the firm successfully raised slightly over $357 million. These proceeds were then utilized to acquire 3,081 Bitcoin, bringing Strategy’s total holdings to an impressive 632,457 BTC. This substantial stack of coins represents roughly 3% of the circulating Bitcoin supply, based on market counts cited in filings.
The company maintains a public target of accumulating 1 million Bitcoin, a goal that, based on the reported figures, is now approximately 60% complete.
Investor Concerns: Dilution Risk and Debt Capacity
Investors are particularly focused on the risk of dilution, as each new share issued increases the number of claims on the same underlying Bitcoin pool. When new shares are issued while the stock trades at low multiples to mNAV, existing shareholders see a decline in their per-share Bitcoin backing.
While reports indicate that Strategy’s debt stands at about 20% of its Bitcoin net asset value, with headroom up to 30%, giving it additional borrowing capacity, the choice to issue equity at low mNAVs still weakens per-share economics. This strategy has led to growing investor apprehension regarding the long-term impact on shareholder value.
