Strategy just crossed 700k BTC but its “circular” Bitcoin funding loop risks a massive high-yield credit disaster
Strategy now holds over 700k BTC, funded partly by preferred stock sales that create a circular loop risking credit disaster.Summary
Strategy (formerly MicroStrategy) has increased its Bitcoin holdings to 709,715 BTC, acquired at an average cost of $75,979 per coin, following a recent purchase of 22,305 BTC for $2.13 billion. The funding mechanism is shifting, relying heavily on proceeds from sales of its common stock (MSTR) and various preferred stocks, including STRC, STRK, and STRF. This strategy aims to create a repeatable "yield SKU" through four distinct, Nasdaq-traded preferred securities (STRC, STRK, STRF, STRD) that offer high yields (up to 11.00% for STRC) to attract income-focused institutional investors like BlackRock's PFF ETF, who are increasingly buying these Bitcoin-linked instruments.
However, this structure creates a significant risk: a circular funding loop. Strategy is funding the dividends on these preferred securities primarily through continuous capital raising, including new stock offerings, rather than operating profits. This dependency means the company sells securities to buy Bitcoin, and then uses capital markets to pay yields on those securities. Experts warn this model is vulnerable to Bitcoin price crashes and untested in recessions, posing a risk of a "massive high-yield credit disaster" due to the lack of maturity dates and reliance on ongoing capital inflows.
(Source：CryptoSlate)