Strategy Buys Bitcoin With Proceeds From Preferred Shares as Key Premium Evaporates

Strategy issued $50 million in preferred stock to fund its latest Bitcoin purchase, leaving common shareholders undiluted as its market cap approached a key threshold, the Bitcoin-buying firm signaled in a blog post on Monday.

The Tysons Corner, Virginia-based company was recently valued at $71 billion, reflecting a 1.06x premium against its $67.8 billion Bitcoin stockpile. The premium, often referred to as mNAV, or multiple-to-net asset value, was close to its smallest in 20 months.

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Last week, Strategy sold a combination of preferred shares, which require the world’s largest corporate holder of Bitcoin to make dividend payments. The sale was mostly of Strategy’s Variable Rate Series A Perpetual Stretch Preferred Stock, at $26 million.

Historically, Strategy has issued common shares to grow its Bitcoin holdings. However, the move has become a less effective way for Strategy to grow the amount of Bitcoin that it owns per share, as mNAV has drifted down from a 2.7x a year ago.

Last week, Strategy added 487 Bitcoin to its corporate coffers. The purchase, valued at $50 million, lifted Strategy’s stockpile to nearly 641,700 Bitcoin.

Strategy shares fell 0.3% on Monday to $241, according to Yahoo Finance. Bitcoin changed hands around $105,400, up 2% over the past day, according to crypto data provider CoinGecko. In a Myriad prediction market, 

On Saturday, short seller James Chanos said on X that he had unwound a trade, in which he was betting on Strategy’s premium to fall. The Wall Street veteran hasn’t revealed the position’s size or any profits, but Chanos has said that he entered into it around a year ago.

By going long Bitcoin, and shorting Strategy’s shares, Chanos wasn’t betting against the price of Bitcoin, but rather that Strategy’s sky-high mNAV from a year ago was fleeting.

“The premium should continue to compress over time as MSTR continues to issue common equity, but we recommend letting others chase that leg of the trade as MSTR inevitably marches towards a 1.0x mNAV,” a note shared by Chanos on X stated.  

This year, Strategy has tried to adapt its stance on common share issuance to convey discipline. And last month, it went several weeks without issuing common equity.

In a recent note, TD Cowen analyst Lance Vitanza said Strategy’s premium and capital issuance are expected to accelerate in the first half of this year, saying the dynamic would be “consistent with prior cycles.”

Last week, Strategy said that it was expecting $715 million in proceeds from the debut of its first preferred share denominated in euros. The transaction is set to schedule on Thursday, with the product debuting in markets in Luxembourg.

If Strategy plowed those funds into Bitcoin, it would be the company’s largest purchase since it spent $2.46 billion on the asset in mid-July. Thomas Perfumo, global economist at crypto exchange Kraken, noted to Decrypt that Strategy’s acquisitions have moved markets less.

“Slowing Bitcoin flows are a major factor influencing the market’s current direction,” he said on Friday. “Demand from digital asset treasuries like Strategy, that supported crypto prices through the summer, is decelerating.”