Strategy's Bitcoin Treasury: Different Securities For Different Investors (New Ratings)

Summary If you’re interested in bitcoin, Strategy is worth a very close look. Its main “business” is bitcoin treasury—i.e., it buys and holds bitcoin. But that’s just the start. Its “intelligent leverage” program, opportunistic capital raises, and coin purchases help the company outperform bitcoin prices. MSTR now trades at a premium to the value of its bitcoin, but a narrower premium than in the recent past. That’s OK. Intelligent leverage deserves some sort of premium. Beyond that, MSTR is raising capital through various preferred issues, each of which is an interesting income vehicle. I’m neutral on MSTR but bullish on three of the preferred issues. While I don’t see bitcoin crashing, as skeptics fear, MSTR and its suite of preferred issues does come with some odd risks around the theoretical sustainability of its operations. Once upon a time, there was a little business information software company called MicroStrategy. It launched in 1989. It went public in 1998, in time for the dot-com bubble and burst. Then, an accounting controversy in 2000 really sent it into a tailspin. The SEC got into the act. Some restructuring followed. And the company limped along uneventfully—until 2011. That’s when it adapted its software to the cloud. Then, in February 2020, it introduced a major new version of its offering. Maybe the company would finally start to become a serious player in its market. But alas, that was not to be. It’s current market share remains mired at a measly 1.29%. (The leader, Tableau Software, has a 17.76% share.) But that’s OK. Co-founder Michael Saylor had other, much bigger, ideas. It was to be about bitcoin. The software business still exists. But the investment case for the company, having been renamed Strategy (NASDAQ: MSTR), is now tied to its… Bold New Trails in Corporate Treasury My initial 12/20/24 MSTR report quoted portions of the company’s 2021 10K (page 10) explaining its pivot to a new bitcoin-focused set of policies. The corporate treasury would consist of the usual holdings of cash and cash equivalents. But it would also include bitcoin. And this would be its “primary treasury reserve asset on an ongoing basis.” In addition, the company adopted… in conjunction with our Treasury Reserve Policy, a business strategy of purchasing bitcoin, and we may from time to time, subject to market conditions, issue debt or equity securities in capital raising transactions with the objective of using the proceeds to purchase bitcoin. **** We view our bitcoin holdings as long-term holdings and we do not plan to engage in regular trading of bitcoin or to hedge or otherwise enter into derivative contracts with respect to our bitcoin holdings, though we may sell bitcoins in future periods as needed to generate cash for treasury management and other general corporate purposes. To give you a sense of how serious this new vision is, take a look at how MSTR’s bitcoin treasury compares to treasuries of other major companies. MSTR IR So here we are—goodbye software (not in fact, but as an investment theme). And hello, Bitcoin. The Appeal of Bitcoin At one time, I’d have classified anything related to bitcoin (or crypto) as scary. And I understand many still do. My first reaction to bitcoin was to think of it as a collectible. How different is that from non-industrial demand for gold or silver? (And as I explained in my 12/20/24 writeup , there is a fixed maximum to the number of possible coins. After 21 million are issued, there will be no more. So, there’ll eventually be a built-in scarcity. That’s not so with precious metals.) As a form of money, I understand how this can be a hard pill to swallow. Government-issued (fiat) currency is so deeply ingrained in our sensibilities, it’s hard to take anything else seriously. But the definition of currency, or money, is and always has been much broader than that. In my 5/9/25 MSTR writeup , I quoted “ Everyday Economics ,” a booklet published by the Federal Reserve Bank of Dallas, as having said: Money is anything that is widely accepted as a form of payment for goods and services or repayment of debts. In the limited economies of POW camps, cigarettes became money as soon as they became the accepted form of payment for rations that prisoners were exchanging. (Emphasis supplied.) Bitcoin clearly is part of “anything.” The only open question is “widely accepted.” Today, its acceptance as a regular medium of exchange remains very limited. But the evolution of the blockchain (where coin ownership and transactions are verified and stored) is helping it gain ground. See generally, my 6/28/24 article on Coinbase ( COIN ). And it’s gaining acceptance in the political, financial, and corporate communities. Starting with politics, the Trump Administration brought a crypto-friendly climate to Washington. MSTR IR This is a big deal. Regulatory hostility has diminished and is turning more supportive. The July 2025 GENIUS Act boosts the legitimacy of stablecoins , an important link between crypto/blockchain and fiat currency. Again, see my 6/28/24 article on Coinbase for more on this. Meanwhile, Wall Street is taking bitcoin more seriously. MSTR IR MSTR IR So, too, are major banks. MSTR IR And business community is beginning to embrace bitcoin. MSTR IR Even Standard & Poor’s is adding an aura of legitimacy. It already added some crypto-friendly businesses to its flagship S&P 500 index. MSTR IR MSTR isn’t included—yet. But it may happen in the future. Bitcoin has had and will continue to have pricing ups and downs. But at this point, it’s hard to suggest it’ll become worthless, as early skeptics (once including me) feared. Most likely, bitcoin will trade like a regular asset. Consider… Demand is rising due to its increasing legitimacy. Meanwhile, supply will be limited . There’s a programmatic limit to the number of coins that can be created. After 21 million coins have been created, no new ones will ever be issued. So despite periodic price slumps and corrections, I believe there will be a general upward bias. An Extra Powerful Asset Play - Intelligent Leverage Assuming, as I do, that bitcoin is a bona fide asset class, one might expect MSTR stock to be valued based on the worth of the company’s bitcoin holdings. But there was always more to it than just that. If one wants to simply play the ups and downs of bitcoin pricing, there are vehicles other than MSTR for that. There’s bitcoin itself. And for those who don’t want to deal with the mechanics of actually owning coins, there are ETFs that invest in it. See, for example, the iShares Bitcoin Trust ETF ( IBIT ). MSTR’s goal is to have its stock (market cap) outperform bitcoin prices. It would do that through the manner in which it raises capital to finance its purchase of new coins. Choosing market conditions under which it issues new debt and/or equity would be one factor. The other would be the timing of bitcoin purchases. This strategy has, so far, worked out magnificently. Even though bitcoin’s price has struggled recently, we see that percent changes in the value of MSTR’s bitcoin holdings dramatically outstripped percent changes in the company’s diluted shares and its market capitalization. Analyst Compilation based on MSTR data and market data from Yahoo.com As tempting as it is to value MSTR stock based on the per-share value of the bitcoin it owns, the above chart confirms we should not thusly limit our computations. Clearly, the company’s “intelligent leverage” is worth something. Thinking this way would actually make for a fairly typical approach to equity valuation. After all, how many stocks today trade at book value! Typically, companies trade at premiums to book based on expectations that management will do things to make it grow. Similarly, it’s reasonable to assume that management’s use of intelligent leverage will enhance the worth of the company’s bitcoin position. So MSTR can legitimately trade at a premium to the current value of its bitcoin holdings. The harder question is how much of a premium MSTR deserves. Below is a historical summary of the stock’s premium. Analyst compilation based on MSTR data and market data from Yahoo.com With stocks, bonds, and real estate, there are theories and models we can use to assess, and argue about, valuation. Bitcoin is like precious metals in the sense that we don’t have objective valuation approaches. With a bitcoin-based asset play like MSTR, the best we can do is note that the stock’s premium to asset value is now low relative to past highs. (It would be nice if it could get back to the discount we saw in 2022. But based on the market’s increased appreciation of intelligent leverage, a discount may no longer be in the cards.) An Increasingly Active MSTR Treasury Buying and holding bitcoin is half the story. The other half is getting capital to finance the purchases. Capital raising at MSTR is much more compelling than at other companies. The typical company can generate capital internally—through profit-making business operations and/or through income produced by non-operating assets. MSTR has neither internal source. It must raise all of its capital externally. Issuance of new common equity is an obvious part of the package. That’s the core of the intelligent leverage strategy discussed above. Debt has been another part of the capital-raising strategy. Theoretically, this introduces a scary element. Debt comes with an interest-expense obligation. But attaching an equity-conversion feature to the debt—as MSTR did when it borrowed—lets it dramatically slash its interest obligation. Most of MSTR’s convertible debt calls for interest at less than 1%. Some are zero-coupon issues. In these cases, borrowers expect to get all of their return through equity conversion. But starting in January 2025, MSTR has been shifting gears. On the 10/31/25 analyst call , CEO Fong Lee discussed the company’s intent to allow its debt to vanish by 2029 through equity conversion. Instead, going forward, MSTR will rely on preferred equity financing. (Unlike with debt, skipping a preferred dividend does not constitute a default.) So far this year, the company has completed a variety of preferred issues: Strategy 8% Series A Perpetual Strike Preferred Stock ( STRK ) Strategy 10% Series A Perpetual Strife Preferred Stock ( STRF ) Strategy 9% Series A Perpetual Stretch Preferred Stock ( STRC ) Perpetual Stride Preferred Stock ( STRD ) Here’s a comparison of market characteristics. Analyst compilation based on data from MSTE and information from issue SEC Registration documents If you haven’t guessed from looking at the table—and I wouldn’t blame you if you haven't—MSTR appears to offer one-stop shopping for a range of income-investor styles. Think of this as a menu with dishes that appeal to different tastes. Now, there are some things on the table that might seem odd. For starters, you don’t typically think of preferred stock as having a duration. That’s an important metric for fixed-income strategists, given how it measures bond volatility. But bonds have an important feature preferred shares lack—maturity dates. Those are critical to calculating duration. But for preferred, there is a theoretical mathematical formulation that produces a duration for non-maturing preferred stock. It’s the Macaulay formula . This is (1+r)/r, where r is the yield or discount rate. That formula is easy to implement. But frankly, looking at its derivation gives me a migraine. Asset coverage is another challenging area. Strictly speaking, all of MSTR’s bitcoin is unencumbered. But the table shows something MSTR calls BTC Rating. Slide 90 of MSTR’s latest earnings presentation defines this as… the ratio of our Bitcoin NAV and the sum of the notional values of the instruments being rated and all instruments that are senior to and, if any liabilities share an equal claim to our assets, such instruments with a stated maturity date sooner than or that may become due upon an exercise of a repurchase right at the option of the holder sooner than, the liability being rated. That’s a mouthful. Essentially, the BTC Rating compares the value of the bitcoin MSTR owns to the value of the preferred issue. And in each case, the figure is adjusted for the fact that each preferred ranks differently in seniority. So higher ratings mean more bitcoin coverage of the preferred obligations. As if this weren’t enough to contemplate, MSTR announced on 11/3/25 that it is issuing another 10% preferred issue, this one to be denominated in euros. Its ticker will be STRE. And the company plans more overseas offerings. MSTR IR This already makes for an intriguing set of investment choices. And the menu is slated to broaden. But all this also presents… Challenging Oddities and Important Risks (1) Long-Term Financing to Cover Ordinary Expenses? Back around 1975, while I was in law school, New York City was going through a major financial crisis. The professor in my Municipal Law class explained it as having been caused by the City’s having issued long-term bonds to cover ordinary operating expenses. Such bonds are supposed to be issued for major one-time projects, like bridges, highways, school construction, etc. Taking those lessons to the corporate sector, we presume long-term debt or issuance of new equity should relate to some sort of one-time capital-type project, or acquisition, or something like that. Even with emerging companies or startups (e.g., quantum computing), we accept the issuance of permanent capital in order to fund expenses relating to building a new business. But how comfortable would you be if an established company like Meta Platforms ( META ), Apple ( AAPL ), Amazon ( AMZN ), or Microsoft ( MSFT ) were to issue long-term debt or new equity in order to raise money to meet its next regular monthly payroll expenses? Speaking for myself, I’d panic. Stretching the example, how would you feel if, say, Exxon Mobil ( XOM ) or Altria ( MO ) issued preferred stock to raise money so it could pay its next quarterly common dividend or the next set of interest payments due on its long-term debt? Again, speaking for myself, I’d panic. I’m not saying this is exactly what MSTR is doing… Come to think of it, as I was deciding how to finish that previous sentence, I realized something. This is, indeed, exactly what MSTR is doing. Cash preferred dividend payments are being funded by the issuance of preferred stock! To be fair, MSTR is running a very different kind of business. And default risk here is minimal, more theoretical than real. Here’s a tally of MSTR’s annual interest and preferred dividend obligations as of its latest earnings presentation . MSTR IR Here is a summary of the company’s capital-raising activities MSTR IR Clearly, the company has been able to raise a heck of a lot more money than it needs to meet its interest and dividend obligations. (New York City in 1975 couldn’t have even fantasized about a money-in/money-out relationship like this!) And there is the unofficial asset backing. We saw in the valuation chart above that the market value of bitcoin held leaves interest and dividend obligations in the dust. And it looks as if it should get easier to raise capital going forward. S&P recently assigned a B- rating to MSTR. MSTR IR That’s high, but not the very top, in the “junk” range. (S&P prefers the word “ speculative .”) But as MSTR points out above, it is at least the first rating for a bitcoin treasury company. Also, even B- gives MSTR access to a bigger capital pool than was the case when it was unrated. MSTR IR (2) Bigger Plans Recall above reference to the planned euro-denominated preferred issues. That’s just the first non-U.S. planned issuance. Also, MSTR is working hard to expand awareness and distribution of its preferred issues. MSTR IR This is good in the sense that it enhances the company’s ability to keep raising capital. But it’s also concerning… (3) Understandability The harder MSTR works to issue and market preferred issues, the greater the probability that more of its preferred securities will wind up in accounts of people who don’t actually understand what all this is about. As more people own securities they don’t understand, the more I worry. I’ve seen the registration statements for the preferred issues. They’re fine. Everything that needs to be disclosed is disclosed. For investors who aren’t inclined to read everything, the summaries in the early pages, while hardly literary, communicate well. But I’ve been around in the investment field long enough to know what should happen often doesn’t. If things go wrong, I honestly cannot see any legal basis upon which disgruntled investors would be able to come after MSTR. But the court of public opinion runs on different rules. If things turn out such that enough people in the future wind up disappointed, MSTR and preferred securities are likely to suffer in price. And that would make it harder, or maybe even impossible, to execute the capital-raising portion of its business model. (4) Expiration Date? In pure logic, MSTR cannot persist perpetually. There’s a finite number of potential bitcoins. The possible supply is programmatically capped at 21 million. The world now has about 19.5 million coins. It sounds like we’re close to the end. But reductions in the amount awarded over time are stretching the time when we’ll hit 21 million out into the future. (See generally, here .) As of 10/26/25, MSTR owned 640,808 coins. That was 3.05% of the potential supply and 3.29% of the current supply. So we can’t really say MSTR is cornering a fixed-supply market right now. But if we project far enough into the future, that might wind up happening. That’s not a worry for today. But as MSTR and others continue to accumulate bitcoin to hold in treasury, we have to wonder how far this can go before liquidity concerns arise and compromise the market. Many see NYSE/NASDAQ stocks as far more worth owning than less liquid OTC Pink Sheet stocks. Might bitcoin evolve toward the latter scenario? But again, this is a theoretical, distant-future concern. It’s not a here-and-now worry. What To Do About MSTR Stock - The Core Investment Vehicle MSTR shares have been weak since my initial 12/20/24 writeup , when I said, “Hold.” Since then, the stock is down 37%, versus a 16% gain for the S&P 500. I upgraded to “Buy” on 5/8/25 given my increased understanding of bitcoin. But since then, the stock is down 44%, versus a 21% gain for the S&P 500. Obviously, those ratings aged poorly. During this time, Bitcoin has cooled off. Another factor in MSTR’s poor performance here has been the narrowing of the stock’s premium to the value of its bitcoin holdings. Also, I suspect a good deal of buying interest in the preferred shares might have absorbed funds that otherwise might have been invested in MSTR had the latter been less aggressive in creating a variety of income offerings. Finally, this situation has become a lot more complex than it was when I reviewed it in the past. Complexity does not help share prices. Here’s the MSTR share price. StockCharts.com This is a bad chart. I hate how the 10-day exponential moving average ((EMA)) is below and falling faster than the also weak 50-day EMA. Chaikin Money Flow ((CMF)) and the Chaikin Oscillator (CO) give no solace. Both measure which party to trade is more motivated. CMF does it for institutional investors. CO does it for the market in general. Both indicators look terrible right now. When it comes to rating stocks, I think in terms of probable future stock performance relative to the market, rather than literally buying, holding, or selling. And since I’m not rating based on a quant model, I’ll eschew “Strong…” extremes. Absent an exceptional degree of conviction, I think “Buy,” Hold,” or “Sell” are enough. For now, I see MSTR as likely performing no better than the broader market. I translate that to the Seeking Alpha rating taxonomy by rating MSTR as a “Hold.” What To Do About the Preferred Issues - The Satellite Investment Vehicles Right now, I’m much more interested in the preferred issues. Maybe it’s my age. The idea of a good-yielding bitcoin play appeals to me. I get that there’s an eventual theoretical date as of which MSTR’s business model has to expire. And I don’t love the idea of permanent capital being issued to cover ongoing interest and dividend expenses. S&P has it right—This is a “junk bond” type credit. But I’m a former junk bond fund manager. (That was back in the mid-1980s heyday, when Michael Milken and Drexel Burnham ruled the field.) I know how to live with credits rated this way, and worse. I’ve seen a lot of bad things in the junk arena. And I’ve invested in things with coverages (interest back in the day or preferred dividends today) that were much more challenging than what we see here. And I’ve accepted those despite much lesser yields. For your convenience, here again, is the table I showed above summarizing the preferred issues. Analyst compilation based on data from MSTE and information from issue SEC Registration documents As to STRK Here’s a 1-year STRK-MSTR share price performance comparison. StockCharts.com STRK appears to be doing exactly what it’s supposed to do. It’s a good income vehicle with exposure to the core MSTR bitcoin treasury business. But its yield mutes some of the volatility. We really see that in the most recent price action. Other preferred issues are more stable. But the combination of yield and convertibility works for me. Given my belief in an upward bias for bitcoin prices, convertibility, the good yield, and the reduced volatility relative to MSTR, I rate STRK as a “Buy.” As to STRC, STRF, and STRD Here’s a 3-month share price comparison between MSTR and STRK, and the newer STRC, STRF, and STRD issues. StockCharts.com I’m giving a thumbs down, on STRD. In terms of price performance, it’s similar to STRF. Meanwhile, STRD has a higher yield. But STRD is a non-cumulative preferred. That means that if the company chooses to skip a dividend payment, it’s gone forever. STRF, on the other hand, is a cumulative preferred (as are the other preferred issues). That means if the company skips a dividend payment, it has to pay all skipped-and-in-arrears preferred dividends before it can resume paying in the future. To my thinking, that extra protection is worth a lesser yield. So I rate STRD “Sell” (meaning I expect it to underperform). Right now, STRC looks like a great income vehicle—obviously , for those who can live with the above-described risks. It has the lowest volatility. And it has a terrific yield. But that adjustability feature (see footnote in the above table) bears watching. It sounds great now. If the stock falls, MSTR will quickly adjust and raise the payout to drive the price back up toward $100. That said, we have to always keep an eye on this issue. If, in the future, bitcoin rallies and causes STRC to rise, we have to expect a dividend reduction. Remember—management will continue to target a $100 share price. Still, for now, STRC looks poised to outperform. I express that as a “Buy” rating for the stock. Meanwhile, STRF is what I’d consider to be the most basic issue. Its combination of yield, volatility, and BTC Rating looks well balanced. And in contrast to STRC, the dividend for STRF will be stable—and in contrast to STRD, cumulative. So I see STRF as an outperformer. Accordingly, I rate it as a “Buy.”