Galaxy Research director Alex Thorn said Strategy’s capital management adjustments, announced Monday, represent an important step for the company but do not mean structural problems have been completely eliminated.
According to Thorn, Strategy’s preferred stock-based “digital credit” system has come under significant pressure in recent weeks. The company’s preferred stock, ticker STRC, fell below its par value of $100, hitting a record high of $71.25 on June 26. The decline has raised questions in markets about how the strategy will pay its increasingly large preferred stock dividends.
Following these developments, Strategy announced a new “digital credit capital framework”. The plan includes a board-approved dollar reserve policy, an updated STRC dividend policy, a $1 billion preferred stock repurchase authorization, a $1 billion MSTR common stock repurchase authorization, and a Bitcoin monetization plan.
The company also increased STRC’s annualized dividend yield from 11.5% to 12%. The new rate will apply to semi-annual dividend payments from July 1.
Following these announcements, MSTR shares rose 12.6% on Monday to around $92.70, while STRC rose 12.2% to around $83.70.
Thorn said that while Strategy’s actions were logical, they might not permanently resolve the company’s structural problems. According to the analyst, Strategy still holds a large preferred stock portfolio and has ongoing payment obligations. Additionally, the company has a total of $6.7 billion in convertible bonds maturing in 2027 and 2028.
Thorn said the market’s main concern was not the strategy’s shortage of assets, but whether the company had enough dollar liquidity to meet dividend payments without harming Bitcoin holders, MSTR common shareholders or preferred shareholders.
Related news Is there a bullish or bearish signal for Bitcoin currently? An analysis firm gave a clear answer
According to Thorn, the fact that Strategy raised more than $1 billion in cash through the sale of common stock, established a minimum cash reserve policy of 12 months, and increased its current cash coverage ratio to approximately 17 months, bought the company some time.
However, Thorn argued that the most controversial part of the plan was the monetization of Bitcoin. He said these statements made it clear that Strategy might sell Bitcoin from time to time, and that such a move could weaken the company’s long-term investment narrative in Bitcoin.
Thorn said Strategy’s identity and premium on MSTR stock are largely based on the company’s narrative of a long-term Bitcoin position and therefore he is not enthusiastic about the idea of selling Bitcoin. However, he noted that selling a small amount of Bitcoin could be defensible if it avoids a disrupted spiral in the capital structure, preserves preferred shares, and allows waiting for better market conditions.
According to Thorn, the strategy should explore ways to generate returns from Bitcoin assets instead of directly selling Bitcoin for spot. This could include lending small, isolated amounts of Bitcoin on conservative terms or considering taking advantage of volatility through options strategies.
*This does not constitute investment advice.
