Strategy’s executive chairman and crypto evangelist Michael Saylor revealed if Bitcoin were to fall 90% and stay down for roughly half a decade, the company would be stable, but equity holders would be wiped out because Strategy is heavily leveraged through convertible debt and bond offerings.
Business-software firm Strategy—formerly known as MicroStrategy—is the world’s largest corporate Bitcoiner. By converting its stock sales and convertible bond issuance into cryptocurrency, the company now owns 568,840 BTC worth nearly $59 billion.
Saylor’s investment strategy consists of placing all his chips onto crypto.
“We think bitcoin is the highest form of property, the apex property in the world, and it’s the best investment asset,” Saylor told Yahoo. “So the endgame is to acquire more bitcoin. Whoever gets the most bitcoin wins. There is no other endgame.”
Rather than focusing on organic growth from its business software, former Bank of America head of equity capital markets Craig Coben told the Financial Times the company’s focus is on “new recruits” and “new money.”
In an effort to raise capital to buy more Bitcoin, the company launched a new preferred stock offering in January, which pays a dividend and includes a liquidation preference at $100 per share, meaning investors would be paid that amount of the company is ever liquidated. The investment vehicle raised $580 million, according to the FT.
Additionally, in March, the company launched another offering, the perpetual strife preferred stock, again, to raise money to buy Bitcoin. This offering “will be payable solely in cash,” according to a release.
While Strategy explores every avenue to invest more money into Bitcoin, Coben said the moves “raises questions about the sustainability of what they are doing,” especially if Bitcoin craters.
As of March 31, Strategy held $60.3 million in cash, just a fraction of the $43.5 billion it held in Bitcoin, according to its form 10-Q. If the company was “forced to sell” its bitcoin “at a significant loss” in order to meet working capital requirements, a practice Saylor firmly opposes, “our business and financial condition could be negatively impacted.”
In February, after Bitcoin fell 13% in a week, Saylor posted on X: “Sell a kidney if you must, but keep the Bitcoin.”
Saylor remains adamant about the company’s security even if there were to be a crypto downturn.
“Our capital structure is constructed (so) that Bitcoin could fall 90% and stay there for four or five years, and we would still be stable,” Saylor told FT.
However, while the company would be stable, Saylor said shareholders are more susceptible to substantial losses if the coin sinks.
“It wouldn’t be a good outcome for the equity holders, right,” Saylor said. “The people at the top of the capital structure, they would suffer because they’re levered, but everybody else in the capital structure would get paid out.”
While Strategy has taken on substantial debt to fund its Bitcoin purchases, a drop in the crypto’s price would “almost certainly result in a larger fall” in Strategy’s stock price, former Citigroup managing director Dave Weiseberger told Fortune.
Despite a recent Bitcoin slide, the cryptocurrency is up nearly 20% this month and more than 65% since this time a year ago.
“As long as MicroStrategy can continue to command a premium to its net asset value, then the strategy will continue to reap benefits for shareholders,” Coben said. Strategy and Saylor did not return Fortune’s request for comment.
This story was originally featured on Fortune.com
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