First it was a software business. Then it became a Bitcoin treasury. Now, the firm formerly known as MicroStrategy is coming after the $100 trillion corporate bond market.
On Tuesday, Michael Saylor, the executive chairman of Strategy, pitched his company’s latest financial engineering move: a $1 billion preferred stock offering that, he said, unlocks a whole new level of Bitcoin-fueled growth.
“We’re the largest issuer of Bitcoin-backed credit instruments in the world,” Saylor told Bloomberg on Tuesday. “That means we borrowed money that we never have to pay back, that we have to pay a dividend on.”
After borrowing the money, the company uses it to buy more Bitcoin.
The trick? Strategy can suspend the dividend payment if it needs to, Saylor said.
‘Alarming’ trend
Strategy now holds 580,000 Bitcoin worth about $63 billion. The company’s market capitalisation is around $120 billion.
Strategy’s scheme is just one piece of an “alarming” and much larger wave of corporate Bitcoin adoption that’s swept up companies from Metaplanet in Japan to GameStop in the US.
History shows that claims of perpetual upside often ignore market realities.
— Eliezer Ndinga, 21Shares
Many are pursuing similar playbooks — issue debt, sell shares, then plough that money into Bitcoin.
Even Donald Trump’s media conglomerate wants a piece of the pie.
Saylor’s new scheme
Unlike the billions that Strategy has raised through convertible debt, this new preferred share scheme works differently.
Preferred stock sits somewhere between debt and common equity. Like bonds, preferred shares typically pay a fixed dividend and are often considered less risky than common stock.
Whereas debt comes with a maturity date — the day when a loan comes due — preferred stock does not.
Holders of preferred shares usually don’t get voting rights, but they do have priority over common shareholders when it comes to dividends.
Because preferred stock never matures, Strategy doesn’t have to repay the principal, nor does it face the same refinancing or liquidation risk as it would with traditional debt.
For Saylor, this is more than just a creative financing tool — it’s a direct shot at the corporate bond market, which he said is worth about $100 trillion.
The bond market offers companies access to capital at scale.
Traditional corporate bonds, however, usually come with fixed maturities and the risk of refinancing.
And he claims it has no downside.
“If we can issue preferred shares that yield 10% while Bitcoin returns 57% — we’re capturing the 47% arbitrage,” Saylor said.
It’s “effectively risk free.”
Moreover, Saylor wants investors to stop valuing the company solely on its existing Bitcoin holdings.
Instead, traders should price in the firm’s ability to continuously raise capital and generate additional Bitcoin yield.
“If you want to value the company, you have to value its ability to generate Bitcoin yield over and above the Bitcoin holdings the company has,” Saylor said.
So far, investors seem to agree.
Strategy’s market cap now sits around $120 billion — a 91% premium over the dollar value of its Bitcoin stack that cannot be explained by its floundering software business.
‘Complete financial gibberish’
Critics say that a monkey in silk is a monkey no less.
“This is, of course, complete financial gibberish,” legendary short seller Jim Chanos said on X.
Chanos has been shorting the spread between Strategy’s stock price — which trades at about $384 and is up 32% this year — and the value of the nearly $63 billion in Bitcoin it holds. He then uses that money to buy more Bitcoin.
At the core of Chanos’ critique is Saylor’s notion of how investors should value Strategy.
“Mr. Saylor wants you to value his business based not only on the net value of his Bitcoin holdings, but additionally with a multiple on the change in that NAV!” said Chanos.
“Because now he can leverage his balance sheet, lol.”
NAV stands for net-asset value, and represents what a company’s holdings are worth on paper. When there’s a premium — or mismatch — it means a company’s stock price gets out of line with the actual value of what it owns.
One example is Metaplanet, Strategy’s copycat from Japan. Analysts at 10xResearch say that investors are pricing its stock at $596,146 per Bitcoin, more than five times the cryptocurrency’s market value.
Ignoring risk
Chanos likened the concept to someone whose house increases in value from $450,000 to $500,000 claiming the property should now be worth $1.5 million by applying a 20x multiple to the $50,000 gain.
That kind of logic ignores the inherent risk that comes with using leverage to repeatedly purchase more Bitcoin, said Chanos.
Indeed, risks abound.
“History shows that claims of perpetual upside often ignore market realities.”
While Bitcoin’s price has climbed substantially since 2020 when Strategy began its Bitcoin buying scheme, Strategy’s net asset value has fluctuated wildly along the way.
Ballooning premium
Yet the company’s valuation premium has ballooned.
“Despite a few spikes and crashes along the way, Saylor’s ‘infinite money glitch’ has really not changed the MSTR NAV very much since he began materially buying Bitcoin in 2020,” Chanos said.
According to Chanos, Strategy now trades at about 1.8 times its net asset value. In 2020, however, that figure was more than six times its value in Bitcoin.
Is Saylor’s grand vision for a Bitcoin-denominated capital market a force to be reckoned with or are the critics rightfully shorting his company’s stock?
One thing is certain — Wall Street, and its sceptics, are watching closely.
