Half a 12 months has handed for the reason that publishing of my initial report on the corporate then-named MicroStrategy, now merely Technique. Aside from a reputation change, the corporate has since then broadened the arsenal of its monetary merchandise, accrued extra bitcoin, and fueled a big selection of corporations copying Michael Saylor’s playbook. There appear to be bitcoin treasury corporations in all places.
Due for an replace, we are going to now examine whether or not or not these bitcoin treasury corporations’ operations are in keeping with the predictions made within the preliminary report, and but once more try and conclude the place all that is ultimately going.
A Trigger for Alarm
In December final 12 months, the corporate appeared close to invincible: With its bitcoin yield KPI accumulating at a mind-boggling annual price of above 60%, optimism reigned. It was no marvel then that a lot of the arguments rigorously specified by the report launched at the moment had been both ridiculed, ignored, or met with snarling challenges to promote the shares brief. The share worth, denominated both in greenback or bitcoin, is at time of writing flat in comparison with these days and to date presents little when it comes to vindication.
Tragically few understood and even reached a very powerful conclusion of my December report, which issues the supply of the bitcoin yield. We are going to due to this fact iterate what’s fallacious with the corporate’s metric, and why this must be a reason behind alarm for any severe investor.
The bitcoin yield — the rise in bitcoin per share — reaching outdated shareholders comes from the pockets of latest shareholders. The brand new shareholders, lots of them shopping for shares within the hope of getting a excessive bitcoin yield themselves, present the bitcoin yield both immediately by shopping for Technique frequent shares created within the firm’s world-record sized ATM (“on the market”) choices or not directly by buying the shares borrowed (after which bought) by delta impartial hedge funds that concurrently maintain the corporate’s convertible bonds. That is the Ponzi part of firm operations — publicly boasting a bitcoin yield far greater than any typical yield, whereas obfuscating the truth that the yield stems, not from the sale of firm items or companies, however from the brand new traders themselves. They’re the yield, and the harvesting of their hard-earned cash will proceed so long as they willingly present it. The scale of the harvest is in proportion to the scale of the confusion, right here measured because the premium of frequent shares over firm web property. This premium is nurtured by sophisticated however inviting firm narratives, guarantees, and monetary merchandise.
As a result of the phrase “Ponzi” has been thrown Bitcoiners’ method for over a decade, they’ve grow to be accustomed — and rightly so — to easily disregard such critiques altogether. However simply because an organization throughout the Bitcoin sector deliberately or inadvertently has constructed a Ponzi scheme, that doesn’t clearly imply that bitcoin itself is a Ponzi. The 2 property are separate. Throughout metallic financial requirements of the previous, Ponzi schemes existed, however that doesn’t imply the dear metals themselves ever had been, or are, such schemes. Once I make this declare of Technique in its present kind, I imply it from the purpose of definition, not from tiresome hyperbole.
The Accumulation Continues
Earlier than drawing any additional conclusions, it’s first time to select up the place we left off within the preliminary report, and map related firm choices made during the last six months. Technique announced on December 9 that roughly 21,550 bitcoin had been acquired for about $2.1 billion (common worth: roughly $98,783 per bitcoin). This buy was carried out with proceeds from the ATM outlined within the well-known 21/21 Plan initiated earlier the identical 12 months. Just some days later, over 15,000 extra bitcoin were purchased, additionally by the ATM providing, and some days after that announcement, about 5,000 extra were purchased.
The tip of 2024 noticed the corporate requesting from its shareholders an modification to extend the variety of licensed shares of sophistication A typical inventory from 330,000,000 shares to 10,330,000,000 shares — in different phrases, a 30x. The variety of licensed shares of most popular inventory was to be elevated from 5,000,000 shares to 1,005,000,000 shares — a 200x. All this, although not the identical as stating the complete quantity to truly be issued, was finished to present the corporate extra liberty in future monetary operations because the 21/21 Plan rapidly ran its course. By additionally specializing in most popular inventory, one other variant of funding may now be pursued. The full year ended with about 446,000 bitcoin owned by Technique, and with an organization bitcoin yield of 74.3%.
Perpetual Strike Most well-liked Inventory
The brand new 12 months began with an 8-K filing stating that Technique was now prepared to hunt the brand new funding by most popular inventory. The brand new instrument, because the title implies, was to be senior to the corporate’s frequent shares, that means the homeowners of the popular shares had a stronger declare on any future money flows. Initially, a $2 billion increase was the said objective. Whereas the brand new instrument was being ready, 450,000 bitcoin had been accumulated by January 12. On the finish of the month, all 2027 convertible bonds were called on to be redeemed for newly issued shares, because the conversion worth was now under the market worth of the shares. Any Technique convertible bond far “within the cash” turns into unappealing to the most important consumers of such devices — the gamma-trading, delta impartial hedge funds — preferring early conversion adopted by new convertible bond issuance over holding the outdated bonds till maturity.
On January 25, 2025, the corporate lastly filed its prospectus for Strike perpetual most popular inventory ($STRK), and a few week later, 7.3 million Strike shares were issued with 8% cumulative dividends on the liquidation choice of $100 per share. In observe, this meant a $2 per share quarterly dividend in perpetuity, or till the shares are transformed to Technique shares in case the value of the latter reaches $1,000. Conversion was outlined on the ratio 10:1, that means 10 Strike shares have to be transformed for each new Technique share. In different phrases, the instrument is akin to a dividend-paying perpetual name choice on Technique frequent shares. If deemed crucial, Technique will pay the dividends within the type of its personal frequent shares. On February 10, about 7,600 bitcoin were purchased with the proceeds from the Strike issuance in addition to from typical ATM providing of frequent shares.
On February 21, Technique issued $2 billion price of convertible bonds maturing March 1, 2030, with a conversion worth of about $433 per share, representing a conversion premium of about 35%. About 20,000 bitcoin may rapidly be bought with the proceeds. Shortly thereafter, a new prospectus was revealed, enabling the corporate to concern as much as $21 billion price of Strike perpetual most popular inventory, that means the already bold 21/21 Plan of final 12 months now appeared to morph into one thing much more large.
Perpetual Strife and Stride Most well-liked Inventory
As quickly as the corporate had publicly introduced its bold enlargement of its funding plan, yet one more instrument was introduced; Strife ($STRF), a perpetual most popular inventory just like Strike, was to go reside with 5 million shares. It was to supply 10% annual dividends in money — paid quarterly — as an alternative of 8% in money or frequent shares. Strife, in contrast to Strike, had no fairness conversion function, however was senior to each frequent shares and Strike. Any dividend delay was to be compensated by greater future dividends, with a most of 18% whole annual dividend price. At time of issuance, the preliminary plan of issuing 5 million shares appears to have been increased to eight.5 million shares, elevating over $700 million. With ATM exercise for the frequent shares in addition to for Strike, Technique may finally announce in March that the corporate held over 500,000 bitcoin. April noticed largely common frequent share ATM actions, till that kind of funding was all however depleted. Strike ATM exercise continued as properly, however because of what was doubtless low liquidity, the greenback quantity raised was negligible. With the proceeds, Technique’s whole bitcoin place climbed above 550,000 bitcoin.
On Could 1, Strategy announced the intention of launching one other $21 billion frequent share ATM providing. This announcement got here very shortly after the ATM arm of the preliminary 21/21 Plan had been exhausted, and totally vindicated the logic outlined within the earlier report in addition to on X. As any premium to web property creates an arbitrage for the corporate, administration is certain to proceed to print new shares overvalued relative to underlying bitcoin property as a way to seize it. Issuance began almost immediately, and extra bitcoin could possibly be accrued.
Because the mounted earnings arm of the preliminary 21/21 Plan already had been prolonged with the brand new most popular inventory in thoughts, traders now confronted an enormous 42/42 Plan, that means a most of $42 billion in frequent share issuance and $42 billion in mounted earnings safety issuance. Can also noticed the SEC filing of a brand new $2.1 billion ATM providing for the Strife perpetual most popular inventory instrument. On the finish of the month, all three ATM choices were printing shares for the acquisition of latest bitcoin. At first of June, yet one more instrument was announced: Stride ($STRD), a perpetual most popular inventory asset just like Strike and Strife, was quickly to launch. It was to supply 10% non-compulsory, noncumulative dividends in money, had no fairness conversion function, and was junior to each different instrument besides the frequent shares. Rather less than 12 million shares price about $1 billion had been initially issued, paving the way for about 10,000 extra bitcoin for the corporate coffers.
A Dazzling Mosaic of Bitcoin Treasury Firms
With the STRK, STRD, and STRF merchandise launched, and Technique’s 21/21 Plan in full swing, the complete image of what has been occurring within the final six months must be clearer. I identified in the initial report that the primary rationale behind the convertible bonds was not, regardless of the claims of the corporate, to supply bitcoin publicity to a bit of the market in want and wish of such. The consumers of the bonds had been nearly all of them delta impartial hedge funds, and, being concurrently brief Technique shares, they by no means had any precise bitcoin publicity. It was all a ruse. The true motive that Technique supplied these securities to lenders was that it gave retail traders an impression of economic innovation concentrating on a multitrillion-dollar trade, in addition to facilitating additional bitcoin accumulation with out fairness dilution. And because the traders bid on the frequent shares, so did the value discrepancy to web property and the chance of risk-free bitcoin yield develop in proportion. The larger the financial confusion, coupled with Michael Saylor’s way with words and vivid analogies, the bigger the corporate’s arbitrage alternative.
By issuing three completely different perpetual most popular inventory securities during the last six months, along with the varied convertible bonds already in place, these sophisticated monetary merchandise may now create an look of economic innovation, thus spurring additional bidding on the frequent shares.
On the time of writing, the frequent shares commerce close to double that of net assets, which is a superb feat by firm administration, given the big measurement and exercise of the frequent share ATM choices. It means Technique can proceed to purchase about two bitcoin for the value of 1 in a risk-free style.
In 2024, the corporate may take pleasure in tailwinds originating from the favored “reflexivity flywheel” idea, the place it was argued that the extra bitcoin the corporate bought, the extra its shares would improve in worth, ensuing within the alternative to purchase much more bitcoin. In 2025, this self-referential stupidity morphed barely to a “torque” narrative, manifesting itself as official firm depictions of mounted earnings cogwheels rotating the core that’s the frequent shares, with bitcoin yield produced from the equipment in consequence. Precisely from the place, or how, the yield was created, few traders gave the impression to be asking themselves, and as an alternative the made-up dynamic was mindlessly celebrated.
Most well-liked shares are monetary property, and never topic to the legal guidelines of physics. Being an engineer, it isn’t shocking that Saylor ought to provide you with all these fallacious analogies in order that bitcoin yield would seem to stem from what can solely be seen as monetary alchemy. However since there are not any precise firm revenues to talk of, no precise banking (the corporate borrows, however doesn’t lend), the bitcoin yield should ultimately stem from the sooner outlined Ponzi aspect of the corporate’s enterprise mannequin; retail traders are dazzled by rigorously curated narratives, inflicting them to bid up the value of frequent shares sufficient for the bitcoin yield alternative to materialize. No matter bitcoin yield originating from the varied debt devices can’t but be thought-about settled as debt should ultimately be paid off. Solely the bitcoin yield stemming from frequent share ATM choices is fast and remaining — a real revenue.
A Bubble of Bitcoin Treasury Firms
Oblivious or to not the truth that narratives can’t affect actuality ceaselessly, the massively profitable bitcoin yield idea of Technique has unfold like a wildfire amongst administration groups of smaller corporations everywhere in the world. CEOs have seen how Technique insiders, by repeatedly dumping shares on the retail traders presently chasing the shares, have grow to be immensely wealthy, and so have began copying the playbook. The fixed Technique insider promoting might be verified by wanting on the quite a few Form 144 filings.
Many of those corporations have efficiently pulled this off, already enriching administration and outdated shareholders on the expense of latest ones. However it should all finish at one level, and lots of of those corporations, greedy in desperation on the daring, new technique of turning into bitcoin treasury corporations (because of the typical important enterprise struggling and even failing) would be the first which might be compelled to promote their bitcoin property to pay collectors when issues take a flip for the more severe. Michael Saylor himself as soon as admitted that he was determined earlier than stumbling over bitcoin.
- Metaplanet was as soon as often called Crimson Planet Japan and struggled mightily to be worthwhile in Japan’s price range lodge sector.
- Earlier than Méliuz SA desperately adopted a bitcoin acquisition technique, it had undergone a 100:1 reverse break up.
- Vanadi Coffee SA drifted ever nearer to chapter, managing 5 cafes and a bakery in Spain’s Alicante area, however its pivot to a bitcoin technique now appears to have carried out miracles for its share worth.
- The infamous meme inventory firm Trump Media & Expertise, with no income to talk of, is now pursuing billions of {dollars} in funding for the aim of making a bitcoin treasury firm as a way to rescue a share worth buying and selling at all-time lows.
- Bluebird Mining Ventures Ltd, additionally in desperation, I’d think about — not less than if the share worth is any indicator — only recently determined to promote any gold it managed to mine as a way to fund bitcoin purchases for its treasury; the shares are at time of writing up nearly 500% in a month.
- H100 Group, a small and till lately struggling Swedish biotech firm, has, on the time of writing returned, to its traders about 1,500% in a month on information that Adam Again, CEO of Blockstream, is funding the corporate by some type of convertible bonds, for the pursuit of a bitcoin treasury technique.
The record may go on and on, however I feel the purpose is made; it isn’t Microsoft, Apple, or Nvidia which might be turning into bitcoin treasury corporations, however failing corporations with nothing to lose. Jesse Myers, a Technique supporter and a direct affect on Michael Saylor’s bitcoin valuation modeling, admitted that,
“[…] with MicroStrategy, Metaplanet and Gamestop, they’re all zombie corporations. All of them had […] a motive to take a severe look within the mirror and say, we will’t maintain doing the technique that we’ve… the trail we’ve been on. We’ve got to radically reinvent our strategy to delivering shareholder worth.”
All these determined corporations have checked out Michael Saylor and Technique and consider they’ve discovered a transparent path to riches. By copying the monetary alchemy themselves, they’re now all concerned in a terrific switch of wealth because the bitcoin treasury firm bubble runs its course.
When the Mosaic Breaks
Although a part of the spectacular firm mosaic, Strike, Strife, and Stride are all senior to fairness. The identical is true for the convertible bonds, not all of them are presently “within the cash.” Future free money move will at all times have to succeed in holders of those devices earlier than no matter is left can go to homeowners of the frequent shares. In good instances, that is clearly not an issue because of the slightly low debt ratio of the corporate; in unhealthy instances, the worth of all firm property decline significantly whereas debt obligations stay — like tall, looming threats to any new creditor. As a result of a phenomenon generally known as debt overhang, any new creditor can be hesitant to lend for the aim of paying off different debt obligations. What began as a fascinating assortment of narratives and exaggerations morphs into one thing turning on its creator.
That is all exacerbated by the truth that a protracted bitcoin bear market will trigger additional promote stress on the asset by the various bitcoin treasury corporations then in misery. The extra fashionable Technique’s playbook turns into, in different phrases, the deeper the longer term bitcoin crash, doubtless wiping out a lot of the fairness of most corporations having pursued such a technique to the bitter finish.
In abstract: Michael Saylor likes bitcoin. He, like all of us, prefers extra bitcoin to much less bitcoin. It’s then extraordinarily naive to assume that he’ll let firm administration cross on what’s by definition an arbitrage. When frequent shares commerce at a premium to web property, the corporate can create risk-free earnings for its outdated shareholders by transferring wealth from the consumers of newly issued shares. This may proceed within the type of ever-larger frequent share ATM choices alongside new, obfuscating ”revolutionary merchandise”, regardless of protests and mutterings about fairness dilution. Proof of this declare is my prediction made in March, coming true within the type of a brand new $21 billion ATM providing barely one and a half months later. If Technique doesn’t act on this arbitrage, all of the copy-cats will seize it as an alternative as they try to extend their bitcoin treasury in an equally risk-free method. Within the frantic scramble to create and broaden all these arbitrage alternatives, corporations will tackle debt in varied types, and hazard abounds.
Throughout the subsequent bitcoin bear market, the Technique share worth will attain — after which break under — web property per share, inflicting giant bitcoin-denominated losses on anybody shopping for at right now’s premium. One of the best motion a Technique investor can take right now is doing precisely what the corporate and its insiders are all doing: Promote the shares!
Bitcoin is now not the primary technique of this firm, nor of any of the now multiplying bitcoin treasury corporations; you might be.
That is an edited model of the article posted on the writer’s Medium page. A fuller evaluation is featured within the subsequent Bitcoin Journal Print issue — be sure you get your subscription now.
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