Strategy Raises Over $700 Million to Purchase Bitcoin
Strategy, formerly known as MicroStrategy, recently announced that it successfully secured over $700 million through a preferred stock offering with the intention of acquiring more Bitcoin.
Details of the Offering
On March 21, Strategy confirmed the sale of 8.5 million shares of its Series A Perpetual STRF Preferred Stock. Each share was priced at $85 and offered a 10% annual dividend. The initial target for the offering was set at $500 million, but it exceeded expectations by raising $711 million.
Key Differences in the Offering
- This latest offering does not allow conversion into common shares, unlike the previous STRK offering.
- The STRF offering came with a higher yield and better pricing terms, leading to a more positive response from investors.
Challenges for Strategy’s Bitcoin Strategy
While the recent capital raise strengthens Strategy’s ability to acquire more Bitcoin, concerns about the company’s long-term financial management have surfaced.
Liquidity Concerns
Strategy currently holds over 499,000 BTC, valued at over $40 billion. However, the decision to hold onto these assets rather than sell them has resulted in limited liquidity for the company. Bitwise noted a decrease in liquidity ratios, with the cash ratio dropping from 2.10 in 2019 to just 0.11 in 2024.
Proposed Strategies for Cash Flow Improvement
To address the liquidity challenges, Bitwise suggested several strategies for Strategy:
- Lending half of its Bitcoin at a 4% annual return to generate income for interest payments and dividends.
- Exploring covered call options, similar to strategies used by other firms like Japan’s Metaplanet.
Impact of FASB Implementation
Bitwise highlighted that the recent implementation of FASB would allow Strategy to report its BTC holdings at fair market value. This change would result in:
“Enabling the company to reflect its Bitcoin holdings more accurately, leading to a higher reported book value and more transparent financials. As a result, Strategy’s earnings volatility will decrease, better aligning its financial statements with its long-term Bitcoin strategy.”
