- Strategy is the largest corporate Bitcoin holder.
- Now, Chair Michael Saylor is making big changes to its stock issuance strategy.
Michael Saylor is moving the goalposts.
The executive chair at Strategy, the company formerly known as MicroStrategy, has loosened its long-held rules on when it will dilute shareholders to buy more Bitcoin.
This week, a new “equity guidance” slide showed the firm will issue stock at far lower market-to-net asset value multiples — or mNAV — than previously promised.
Not even a month ago, Strategy pledged it wouldn’t issue shares under 2.5x mNAV.
mNAV compares a company’s market capitalisation to the value of its Bitcoin holdings. Above 1 means investors are paying a premium. Below 1 means the market values the stock at less than the coins it owns.
Strategy’s aim with the change is to “provide greater flexibility in executing our capital markets strategy,” Saylor said on X on Monday.
Michael Saylor’s scheme
Saylor’s Bitcoin treasury approach is to raise capital to buy more Bitcoin by issuing new shares.
The company’s Bitcoin holdings are worth about $75 billion, making it the biggest corporate Bitcoin holder in the world.
Additionally, Strategy currently trades at about 1.4x mNAV, according to Bitcoin Treasuries — well below its previous 2.5x floor.
Crypto treasury companies have become the big trend of the current cycle. The sector has ballooned into a $112 billion market, according to Bitcoin Treasuries.
It all began in 2020, when Strategy started to build up its Bitcoin treasury back, but lately other players have joined. Those include US President Donald Trump’s media conglomerate, the gaming retailer GameStop, and video streaming platform Rumble.
New rules
Under the old rules, Strategy would have been locked out of issuing stock to fund new Bitcoin buys.
Under the new ones, however, management has much more freedom to tap equity markets at thinner premiums.
For instance, the firm will “actively” issue shares if its mNAV tops 4x, do so “opportunistically” between 2.5x and 4x, and may still issue below that threshold to cover debt, dividends, or “when otherwise deemed advantageous.”
Strategy could even issue credit to repurchase shares if the stock slips below 1x under the new rules.
‘Spiral of doom’
If Strategy is forced to sell shares at thinner and thinner premiums just to service debt, it risks triggering what former Goldman Sachs analyst Dom Kwok called a spiral of doom.
That means dilution eats into shareholder value, shares sink lower, interest payments mount, and the firm could even be forced to sell its vaunted Bitcoin stash to stay afloat, according to Kwok.
The stakes are high because mNAV is the core pitch for the entire crypto treasury sector. In practice, however, many firms are struggling. Of the 167 listed crypto treasury companies, 13%, or about 21 firms, already trade below an mNAV of 1, according to Bitcoin Treasuries.
In June, Bitcoin analyst James Check warned investors that “arguably most” treasury companies will eventually under-perform when compared with Bitcoin.
Strategy didn’t immediately respond to requests for comment.
Pedro Solimano is DL News’ Buenos Aires-based markets correspondent. Got at a tip? Email him atpsolimano@dlnews.com.