Saylor’s Strategy: buy higher, pump harder

Few tales in corporate finance are as audacious, bewildering, or downright entertaining as that of the company formerly known as MicroStrategy. This once-humdrum business-software vendor has transformed into a high-octane bitcoin investment vehicle under the flamboyant leadership of Michael Saylor, its co-founder and executive chair. The company, now called Strategy, holds nearly 500,000 bitcoins, equivalent to 2.38 per cent of the total supply, acquired at an average price of around $66,000.

What captivates markets isn’t just the scale of Strategy’s bitcoin accumulation but the relentless financial engineering underpinning it. The latest manoeuvre is the announcement last week of a $21bn “at-the-market” (ATM) offering of STRK, a convertible perpetual preferred stock currently yielding more than 9 per cent (payable at the company’s discretion in cash or common stock). The proceeds will be used, predictably, to buy more bitcoin.

At today’s bitcoin price of around $80,000, Strategy could amass another 262,500 bitcoins, bringing its total holdings to 3.6 per cent of all bitcoin in existence. According to JPMorgan research, “MicroStrategy’s bitcoin purchases alone accounted for 28 per cent of last year’s record capital inflow into crypto markets.” It’s no exaggeration to say that Strategy is not merely a major player but the market itself — a blue whale consuming all the available krill in the bitcoin ocean.

This latest financial feat follows hot on the heels of a $42bn ATM issuance of common stock and debt announced on Halloween 2024 — a fitting date for a company that thrives on financial trick-or-treating. At the time, Strategy’s shares closed at $244.50. The election of Donald Trump sent the stock soaring, reaching an intraday peak of $543 on 20th November, but it has since fallen to half that level. The rollercoaster ride has been white-knuckle stuff.

At the heart of this bitcoin bonanza is an anomaly few investment firms can replicate: Strategy’s stock trades at a persistent premium to its net asset value. Most investment trusts struggle to avoid trading at a discount, often inviting shareholder activism and pressure to buy back shares. Not so for Strategy, whose stock has commanded a premium as high as 3.8 times NAV, currently standing at around 1.7 times. This valuation anomaly has enabled the company to issue equity and equity-linked instruments aggressively, using the proceeds to acquire yet more bitcoin. It is a self-reinforcing cycle that has cemented Strategy’s status as a Wall Street obsession (and massive investment banking fee-payer) and a bitcoin juggernaut.

Yet, therein lies the rub. Strategy’s legacy software business does not generate cash. Servicing the high dividend on STRK will require further financial engineering, most likely through additional equity issuance. This will inevitably lead to dilution for existing common stockholders. STRK, in effect, functions as a perpetual payment-in-kind instrument, combined with an out-of-the-money call option — an elegantly convoluted mechanism primed for significant dilution.

Then there’s Saylor’s recent post on X (formerly Twitter):

Saylor has a penchant for making grandiose public statements. This latest cheeky piece of (self-)promotion is eye-catching not just for its bravado but for its potential regulatory implications. Legally, a company’s prospectus — replete with carefully lawyered risk factors — is meant to do all the talking. Public companies are not supposed to hype their stock offerings, and Saylor has previously tread a very fine line by championing bitcoin rather than Strategy stock itself. This latest post, however, is harder to explain away. 

The public plea is all the more striking given that back in 2001, Saylor had consented to a permanent injunction against violating antifraud provisions of US securities law to settle Securities and Exchange Commission charges of accounting fraud. (Without admitting wrongdoing, Saylor also paid $8.6mn in disgorgements and penalties.) This latest post appears to count on a more relaxed approach to regulatory enforcement under the new Trump administration.

Of course, if the price of STRK declines, the plaintiffs’ bar will be eager to pounce. But for now, Saylor seems content to test boundaries.

Saylor’s brilliance does not necessarily lie in investment acumen but in his ability to elevate Strategy’s share price — up over twentyfold since its pivot to bitcoin in August 2020. This has enabled insiders to cash in massively, with senior executives unloading $568mn of stock in 2024, including a flurry of sales by Saylor’s lieutenants near the peak in November. 

Yet it would be a mistake to conflate share price performance (and C-suite enrichment) with investment performance. Since its shift to bitcoin four-and-a-half years ago, Strategy’s cumulative return on its bitcoin holdings is a modest 20 per cent, while bitcoin has soared by around eight times.

Saylor’s timing has been far from impeccable. Between November 10 2024 and February 23 2025, according to Investor’s Business Daily, “Strategy spent $21.2bn buying bitcoin at an average price of $96,458.” The company buys high, not low, because it issues more shares and convertibles when bitcoin is soaring. This, in turn, fuels excitement around Strategy’s stock and drives up its premium to NAV. This habit of buying high is a feature, not a bug, of Strategy’s approach.

As for Saylor’s investment advice, on January 20 2025, he tweeted, “Sell your kidney if you must, but keep the bitcoin.” Had one followed that guidance, the result would be a mark-to-market drop of 20 per cent in investment value and a realised loss of a critical organ.

Bitcoin may come back; an excised kidney will not. The broader question remains whether Strategy’s relentless fundraising to buy bitcoin is a masterstroke or a reckless gamble. The $1,000 per share conversion price for STRK represents a wager on bitcoin’s continued ascent. If bitcoin soars, all stakeholders benefit. If it stagnates or declines, the dilution from STRK and other equity issuances will weigh heavily on common shareholders, who are already being pushed further down the capital structure.

For now, Strategy’s financial wizardry is working. Notwithstanding the recent correction in its share price, the company’s ability to craft novel securities and attract new buyers has helped sustain bitcoin’s rise — or, more recently, temper its fall — reinforcing a feedback loop that keeps the game going.

But how long can it last? Strategy’s success depends on two critical factors: the continued premium of its stock to NAV and the ongoing appreciation of bitcoin. If either falters, the entire edifice risks collapse. In the meantime, Saylor and his team will presumably continue issuing equity and equity-linked securities, accumulating bitcoin, exhorting the US government to buy 20 per cent of total bitcoin supply, and selling their own Strategy shares at periodic intervals.

Saylor’s X post sums up Strategy’s strategy: strike the iron while it’s hot. The question is whether management’s hyper-opportunism belies the confidence they so often profess.

Further reading:
— If bitcoin is the future, what explains MicroStrategy’s need for speed? (FTAV)
— MicroStrategy’s secret sauce is volatility, not bitcoin (FTAV)
— Examining MicroStrategy’s record-shattering $21bn ATM (FTAV)