Strategy continues its purchases of bitcoin despite the fragility of its main financing tool. Michael Saylor's company invested around $35 million in an additional 520 BTC, bringing its reserves to 847,362 bitcoins. A modest purchase on its scale, but full of meaning as the STRC continues to lose ground.
In brief
- Strategy buys 520 BTC for around $35 million.
- Its reserves now reach 847,362 bitcoins.
- The drop in STRC limits its ability to finance large purchases.
Strategy adds 520 bitcoin to its reserves
Strategy acquired 520 BTC for around $35 million over the past week. The company thus continues its accumulation after having already devoted 100 million dollars to its previous purchase. This new operation brings its assets to 847,362 BTC. Strategy remains by far the first listed company to hold bitcoin. Its reserve now represents just over 4% of the maximum supply of 21 million bitcoins.
However, the size of the purchase confirms a slowdown. The company until recently made acquisitions sometimes exceeding a billion dollars. The 35 million committed this time show that its financing capacity is becoming more constrained. The main problem comes from STRC, a perpetual preferred stock designed to trade around $100. This stock pays a variable dividend that Strategy can adjust in order to support its price and attract new investors.
However, the STRC fell significantly below its target value. This decline complicates new issues. Strategy generally avoids selling STRC shares below $100, as such a transaction would be less profitable and would increase the cost of capital raised. However, this product had played a major role in previous acquisitions. In May, STRC sales financed the bulk of a $2 billion purchase made by the company.
The weakness of the title therefore reduces the fuel available for bitcoin. It requires Strategy to use other leverage, including sales of MSTR common stock, its dollar reserves or other preferred securities.
High yield becomes expensive
STRC currently pays a high annual dividend. This return was intended to appeal to investors looking for regular income, while allowing Strategy to raise funds to buy more Bitcoin.
But this mechanism becomes more expensive when the stock falls. To bring it closer to its target value, the company can increase its dividend. It then increases its financial obligations at the same time as its possibilities of raising capital diminish. The group therefore remains dependent on new issues of securities, its reserves or, as a last resort, sales of bitcoin.
This pressure explains the recent sale of 32 BTC. The operation was tiny compared to total reserves, but it shattered the narrative that Strategy would never sell its bitcoins. Michael Saylor continues to defend Bitcoin as digital capital superior to traditional assets. However, Strategy’s model is no longer based solely on the rise of BTC. It also depends on the behavior of MSTR, STRC and other financial instruments issued by the company.
The real test therefore no longer concerns only the price of Bitcoin. It concerns the resistance of the entire financial architecture built around it. After the doubts caused by the drop in STRC, Strategy must prove that it can continue to accumulate without weakening the instruments which finance its bet.
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