MSTR Stock: Strategy Eyes $58 Billion Bitcoin War Chest. Be Skeptical.

Strategy (MSTR), the biggest corporate holder of bitcoin, just filed with the SEC to raise another $44 billion through preferred and common stock offerings. That’s on top of $14 billion in available issuance based on prior filings. The bitcoin price was essentially unmoved by Strategy’s show of force, while MSTR stock rose moderately on Monday, recouping some of last week’s losses.

Bitcoin surged early after President Donald Trump announced a five-day ceasefire in the Iran war, but has largely moved sideways since then, despite Strategy massively increasing its potential war chest. That may be because the announcement is aspirational. Strategy will only be able to raise such a massive sum and deploy it to buy bitcoin if markets cooperate. That’s certainly possible. But at the moment, markets are on the fence, and Strategy’s buying power has waned.

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Strategy Talks Big, Buys Small

Strategy’s other filing on Monday morning provided a stark contrast with the $44-billion chest-thumping expansion of available issuance under its at-the-market offering programs. After deploying $2.845 billion on bitcoin purchases over the prior two weeks, Strategy’s buy last week was a relatively trivial $77 million.

Here’s what happened that took the wind out of Strategy’s sales last week. The company’s Stretch preferred stock, which is listed on Nasdaq as STRC, traded below its 100 par level all last week. “If it trades below 100, we don’t sell it,” Strategy founder said on the Feb. 5 earnings call. “When our credit instruments are trading weak and when the cost of credit is too high, we don’t sell them.”

On Monday, STRC rose 0.3% to 99.86, so it would be an exaggeration to say it’s “trading weak” at the moment, though STRC remains in the “no-fly” zone below 100, keeping a lot of Strategy’s powder dry.

Yet that didn’t stop Strategy from expanding available STRC issuance by $21 billion to just under $23 billion.

There’s a good reason why Strategy doesn’t want to issue STRC when it trades below par. The company has committed to boost the interest rate on the preferred stock by 0.25% for every month that it averages below 99.5. That’s happened for seven straight months, so the dividend rate for all outstanding STRC has climbed from 9% to 11.5%.

At that rate, bitcoin purchased with STRC could rise 8% a year and Strategy would still only come out even after a decade.

From Bazooka To Pistol

Strategy’s other big gun is its common stock. The company expanded available issuance by $21 billion to $27.2 billion. However, MSTR stock’s bitcoin-buying power has also faded as shares have plunged much more than the bitcoin price (70% vs. 58%) since the stock hit a 52-week high last July. As Strategy’s premium vs. the value of its bitcoin holdings has eroded, it faces a hurdle in making purchases with MSTR.

Keep in mind that bitcoin per share is Strategy’s key metric. It allows founder Michael Saylor to make a case to investors that MSTR stock should rise faster than bitcoin because bitcoin per share is always increasing. Yet last week’s bitcoin purchase was an example. While bitcoin per share was unchanged, that’s only because Strategy threw in a bit of cash on top of its share issuance to pay for the bitcoin.

Strategy needs a second big gun like STRC to supplement bitcoin buys made with MSTR stock in order to keep bitcoin per share flat or rising.

The other $2.1 billion expansion of Strategy’s available issuance is for its Strike preferred stock listed as STRK as Nasdaq. However, Strategy canceled the prior $20.3 billion available STRK issuance as it made a changes to the prospectus. The upshot is that Strategy, which has called STRC its flagship preferred issue, no longer appears to view STRK as a major source of financing.

MSTR Stock

MSTR rose 1.9% to 138.20 on Monday. Shares traded as high as 152.27 last week and eclipsed the 50-day moving average, but they’re now back below that key technical level.

The bitcoin price shot up from around $68,500 to nearly $71,000 on Trump’s announcement of a five-day reprieve for Iran — and for markets getting crushed by high oil prices. But since then, despite Strategy’s big aspirational war chest news, the bitcoin price has traded flat within a narrow range.

Be sure to read IBD’s The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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