Strategy Inc (NASDAQ:MSTR) experienced a significant stock decline on Thursday, falling 5.7% in late morning trading to $88.78, as investor sentiment shifted toward the company's dividend obligations rather than its bitcoin acquisition strategy. The drop came after the firm raised $335.5 million through a common stock offering but allocated only a fraction of those funds to purchasing bitcoin.
Between June 15 and June 21, Strategy sold 2.7 million common shares, generating net proceeds of $335.5 million. Of that amount, just $34.9 million—approximately 10 cents of every dollar raised—was used to acquire 520 bitcoin. The remaining 89 cents per dollar went into the company's USD reserve, which now stands at $1.4 billion. This reserve is equivalent to about 14 months of STRC preferred stock dividends, according to the company.
The market's reaction was immediate and pronounced. STRC, the company's preferred stock series with an 11.50% annual dividend on a notional value of $10.49 billion, traded at $78.61, a 21.4% discount to its $100 par value. This indicates that investors are pricing in significant risk about Strategy's ability to sustain its dividend payments without further diluting common equity or selling bitcoin holdings.
Julio Moreno, head of research at CryptoQuant, has been vocal about Strategy's need to prioritize cash reserves over bitcoin purchases. In comments to Bloomberg News, Moreno stated that rebuilding dollar reserves should be the company's main focus rather than buying bitcoin every time funds come in. He highlighted that buying at market tops and during bear markets has exacerbated unrealized losses and weakened STRC's fundamentals.
The annual dividend cost for STRC is approximately $1.21 billion, and Strategy's cash reserves have already declined by 38% this year. Moreno told The Block that “a higher cash reserve is the most direct signal” the market wants to see regarding STRC. He added that “the path back to $100 is not straightforward,” referring to the preferred stock's par value.
Bitcoin itself also faced headwinds, dropping 2.8% to $59,195. At that price, Strategy's total holdings of 847,363 bitcoin were valued at approximately $50.2 billion, against a total purchase cost of $64.10 billion, resulting in a paper loss of roughly $13.9 billion. The company's market capitalization stood at about $29.6 billion, reflecting the discount at which common shares trade relative to the underlying bitcoin value.
However, the gap between bitcoin holdings and market cap does not imply that common stock is a straightforward value play. Preferred shares, debt obligations, tax considerations, and the software business all have senior claims on the company's assets before common equity holders can access the bitcoin reserve. Strategy has explicitly stated that its preferreds are not backed by bitcoin and only have a preferred claim on residual assets after other obligations are met.
In its June 22 filing with the SEC, Strategy indicated that it “plans to continue replenishing” its USD reserve as market conditions allow, to support the credit quality of its digital credit securities. The company has not announced an end to its bitcoin purchases, but the current strategy appears to be a balancing act between maintaining dividend coverage and continuing to accumulate the cryptocurrency.
The broader market context suggests that investors are increasingly skeptical of Strategy's approach, as the company's cash reserve has dwindled while dividend obligations remain high. With STRC trading well below par and MSTR under pressure, the path forward for Michael Saylor's bitcoin-centric strategy may require a more conservative allocation of capital.
