Editor's Note: As Michael Saylor continues to amplify his company's Bitcoin exposure through tools like STRC, an apparently efficient financial structure is also accumulating dividend pressure and potential risks. In the short term, it has driven inflows and price increases; but once the market sentiment shifts, this mechanism relying on continuous funding may quickly backfire on the company itself. This article delves into this structure, attempting to untangle its operational limits and potential cascading effects in extreme scenarios.
Below is the original text:
Through STRC, Saylor has created a "Frankenstein's monster".
Victor Frankenstein, out of hubris, created this monster—he believed he could play God and challenge death. But after this monster successively destroyed his family and friends, it eventually dragged him into destruction as well.
Through STRC, Saylor has designed an "idealized" BTC-linked tool that allows retail investors to obtain Bitcoin's excess return in a manner similar to a "risk-free rate.” It is this financial engineering capability that enables him to claim an unprecedented Sharpe ratio and achieve an 11.5% return on just a 1% Bitcoin price movement—but ultimately, this mechanism could also crush MSTR.
Note: The following analysis is based on one assumption—that BTC will trade sideways or downwards. If BTC achieves a compound growth rate of 20–25% as set internally in the strategy, many of these assumptions will no longer hold (but not all will be invalidated).
In just the past two weeks, STRC has attracted nearly $3.5 billion in inflows, with a total issuance size reaching $8.5 billion. Coupled with other priority class tools in the Strategy, the current outstanding size is approximately $13.5 billion (excluding convertible bonds here). The proceeds from this financing have on the one hand supported corresponding BTC purchases in scale, likely a key driver behind last week's price surge to $78,000; but at the same time, they have also brought about approximately $400 million in annual dividend obligations.
Previously, Saylor maintained a dividend reserve of about $2.25 billion. Prior to the issuance in April, this reserve could cover approximately 25 months of dividends. However, the addition of new issuance in just the last two weeks has already compressed the coverage period to 18 months. To restore it to 25 months, he would need to refinance approximately $500 million through ATM (At-the-Market) issuance based on market price.
Currently, MSTR's mNAV has dropped to the range of 1.25–1.30 times the year-to-date high, prompting the crypto community (CT) to once again call for large-scale BTC purchases this week. However, the issue is that I believe about 50–70% of this week's new issuance will be used to replenish the dividend reserve rather than directly purchasing BTC.
More thought-provoking is the performance of STRC in an "extreme scenario." The current market value of MSTR is around $55–60 billion. The real question is: how much more STRC can Saylor issue before the dividend burden substantially pressures mNAV?
A simple estimation would be: the annual issuance size can be kept within 1–2% of MSTR's Average Daily Volume (ADV). Based on the current daily trading volume of about $2–3 billion, with 252 trading days in a year, this roughly corresponds to an issuance space of $50–150 billion — equivalent to 3–10 times the current year's dividend/interest expenses.
However, I am more inclined to believe that this range represents an "upper limit" rather than a normal level. In fact, for common stockholders, the structural cost of this transaction has already begun to show: STRC's success is actually suppressing MSTR's mNAV — a metric that was closer to 1.5 times during the volatility range since 2023 (of course, one could argue that the current environment is more akin to the early to mid-2022).
Superficially, for common stockholders, continuing to support these "yields" that do not translate into their own upside gains seems to be an irrational behavior — in the case of continued issuance, the BTC holdings per share have not seen a substantial increase (of course, largely due to the Strategy's already massive scale).
That being said, DAT shareholders themselves are a rather "special" group, and I can imagine that they can withstand this kind of pressure, at least not necessarily shifting this view within the next year.
Furthermore, the above analysis implies a key premise: MSTR can maintain an mNAV above 1 times in the foreseeable future. If it falls below 1 times, then compared to issuing new shares directly, Saylor selling BTC would result in less dilution to shareholders. This would open the supply gate, leading the market into a phase dominated by "downward DAT reflexivity" — a point I discussed last year (original post).
Let's briefly summarize this logic chain:
STRC continues to expand;
As the scale grows, Saylor needs to pay more and more dividends;
The buyers of MSTR gradually realize that the stocks they bought are actually financing dividends, rather than being used to buy more BTC;
Buyers find that this was not the transaction structure they initially expected and begin to exit;
Once new buying interest is lacking, mNAV falls below 1x;
mNAV < 1x → Saylor has to sell BTC instead of issuing more shares;
The market enters a state of panic.
In my view, the correct way to assess the maximum token supply of STRC is to find an "inflection point": where the dividend burden from new issuances starts to outweigh the marginal benefit of BTC per share growth. From a relatively rough estimate, this inflection point roughly corresponds to annual dividend expenses of 30–40 billion dollars, equivalent to an additional issuance of about 100–200 billion dollars of STRC. At the current pace, this point may be reached in as soon as 6 months.
Of course, Saylor still has room to maneuver. The dividend reserve does help stabilize price and market confidence, but if the oscillation or downtrend continues, holders are actually playing a game of "musical chairs." When the dividend reserve is only 6 to 9 months away, a rational choice may shift to: exiting early in the 90–95 price range rather than risking the downside from Saylor pausing dividends (another option for him).
Although the dividend of STRC is "cumulative," in extreme circumstances, I believe Saylor is more likely to choose to "completely sacrifice preferred stock credit" rather than being forced to sell BTC on a large scale. Essentially, he faces an arithmetic problem: "If I fulfill preferred stock obligations and give up future issuance space, how much more BTC can I buy - the amount of BTC to be sold to maintain preferred shares = result."
If the result is positive, then selling BTC is the choice; otherwise, it is to "sacrifice" the preferred stock shareholders.
The main reason against this assessment is: once it is truly necessary to make this calculation, the market is likely to have already turned, and MSTR's mNAV is also highly likely to fall below 1x.
Thank you for reading, even though the beginning was a bit "sensational." Different views or criticisms are also welcome. (Thanks to @TraderBot888, the person who first discussed this idea with me years ago.)
