You might remember them as MicroStrategy, but now known as Strategy, the company recently announced they’ve successfully raised over $700 million through a preferred stock offering. Guess what they’re planning to do with all that cash? Yep, buy even more Bitcoin!

Back on March 21st, they announced the details: they sold 8.5 million shares of their “Series A Perpetual STRF Preferred Stock.” Priced at $85 each, these shares come with a sweet 10% annual dividend.

Initially, Strategy aimed to raise $500 million with this STRF offering. But get this – they smashed that target by over 40%, bringing in a whopping $711 million!

Now, here’s an interesting point: unlike their previous STRK offering, this new STRF stock doesn’t allow conversion into common shares. The STRK offering, by comparison, offered an 8% yield *and* those conversion rights.

Jeff Park, the head of alpha strategies at Bitwise, chimed in with an insightful observation. He believes investors weren’t necessarily after exposure to Strategy’s potentially volatile stock. Instead, the appeal of STRF was likely its fixed income nature.

Park further explained that the higher yield and more attractive pricing of STRF were key factors in its success compared to STRK, ultimately leading to the larger fundraising amount.

So, can Strategy’s Bitcoin-First Strategy Actually Work Long-Term?

This fresh injection of capital certainly gives Strategy more firepower to buy Bitcoin. However, some are starting to wonder if the company can effectively manage its long-term financial obligations.

Let’s remember, Strategy is sitting on a massive pile of Bitcoin – over 499,000 BTC, currently valued at over $40 billion! Their whole identity is built around aggressively buying and holding Bitcoin. But this steadfast refusal to sell any of their holdings has resulted in some, shall we say, “liquidity challenges.”

Bitwise highlights this liquidity issue, pointing to a sharp drop in their cash ratio. Back in 2019, it was a healthy 2.10, but by 2024, it had plummeted to a mere 0.11.

Despite these concerns, Bitwise reassures us that the risk of bankruptcy is still considered low. Even in a pretty bleak scenario – imagine Bitcoin crashing to $30,000 by September 2027 – they estimate Strategy would only need to sell off about 7.3% of their Bitcoin to cover a significant $1.1 billion bond obligation.

Still, Bitwise suggests some smart moves to improve Strategy’s cash flow. One idea? Lend out half of their Bitcoin at a 4% annual return. This could generate enough income to easily handle interest payments and dividends.

Another strategy they propose is using covered call options, something that companies like Japan’s Metaplanet are already doing.

Bitwise concludes on a positive note: the recent adoption of FASB standards will now let Strategy report their Bitcoin holdings at fair market value. This, according to Bitwise, will:

“Enable the company to reflect its Bitcoin holdings more accurately, leading to a higher reported book value and more transparent financials. As a result, Strategy’s earnings volatility will decrease, better aligning its financial statements with its long-term Bitcoin strategy.”

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