I looked at the responses from my friends, and most of them believe that MSTR's biggest mistake was using leverage when buying bitcoin:native. Here are my thoughts.
First of all, MSTR itself admitted in its annual report that its strategy is to use equity and debt capital markets to finance the purchase of Bitcoin and maintain leveraged exposure to Bitcoin. The company also disclosed that Bitcoin does not generate interest or dividends, and its financial obligations mainly rely on ordinary stock ATM, dollar reserves, additional equity, or debt financing to cover.
On the surface, it indeed appears to be leveraging to buy BTC. However, the real issue is not the word leverage; the problem lies in the nature of the leverage.
There are many types of leverage. Low-interest convertible bonds are one form of leverage; ordinary stock ATM is a type of financing amplification; preferred stock is another source of funding that is close to fixed-income products. The risks of these things are completely different when put together.
In the early stages, MSTR used low-interest convertible bonds to buy BTC, and the risk was actually relatively controllable because the interest pressure was low, and the term was relatively long. As long as there was no short-term forced liquidation, BTC's volatility could be hedged over time.
When MSTR's stock price has a premium relative to BTC for a long time, financing through ordinary stock to buy BTC essentially converts the premium given to MSTR by the capital market into more BTC. Whether this action benefits ordinary shareholders depends on whether the per-share BTC increases or decreases after the issuance.
What truly worries me is that the subsequent structure started to become heavier. This refers to the setup of preferred stock.
Preferred stock is not the same as convertible bonds; preferred stock is not that simple. Preferred stock does not bring immediate debt pressure but does bring continuous dividend pressure, and it has priority over common stock. BTC itself does not generate cash flow, so MSTR must pay these dividends either with dollar reserves, through continued financing, by selling common stock, or in extreme cases, selling BTC.
So the issue is not that MSTR leveraged when buying BTC; the problem is that MSTR's later financing structure increasingly depends on the capital market's willingness to lend it money.
As long as BTC rises, MSTR has a premium, ATM can issue, and preferred stock can be sold, this system is in a positive cycle. MSTR can finance, and after financing, buy BTC; BTC reserves increase, per-share BTC increases, and the market continues to give MSTR a premium.
But if BTC falls, MSTR's stock price falls, the premium shrinks, the preferred stock price drops, and financing costs rise, this system will turn around. The more the market worries, the harder it is to finance; the harder it is to finance, the more the market worries about how to pay dividends and replenish dollar reserves; the more the market worries, the greater the pressure on MSTR's common and preferred stock.
This is the real risk for MSTR.
MSTR is more like binding the long-term upward trend of BTC, the company's stock premium, capital market financing ability, and credit of preferred stock into a single structure.
In favorable winds, this acts as an accelerator. In adverse winds, this is a stress test.
Especially since Bitcoin itself has significantly cyclical fluctuations, it means that MSTR is likely to face periodic high premiums and negative premiums. Moreover, looking ahead, MSTR’s cycle issue until 2028 is not significant; the challenge lies in the next cycle after 2028.
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