Galaxy: Strategy trades time for space, quietly waiting for the market to warm up.

Editor's Note: The announcement released by Strategy last Monday is a major turning point for the world's largest corporate Bitcoin holder. The market bought it, but will this move silence the critics? This article was published in Galaxy Research's weekly research brief on July 3, compiled by Xiaozou from Jinse Finance.

Strategy (MSTR) under Michael Saylor announced a major overhaul of its capital management framework last Monday, following significant pressure on its preferred stock "Digital Credit" product system over the past few weeks.

STRC, the company's flagship "Stretch" series preferred stock, was expected to trade near its $100 par value, but as Bitcoin fell over the past two months, its price dropped sharply below par; Strategy's dollar reserves shrank; investors began to question how the company would cover an expanding preferred dividend bill. STRC fell below $83 on June 18, then hit a record low of $71.25 on June 26, as Strategy's common stock and BTC both came under pressure during the same period.

The debate quickly focused on three uncomfortable options: selling Bitcoin, diluting MSTR shareholders through additional common stock issuance, or suspending/cutting preferred dividends. Arca Chief Investment Officer Jeff Dorman, one of the most outspoken critics, argued that Strategy's capital structure made MSTR shareholders, BTC holders, and preferred shareholders compete for value on the same balance sheet; Cointelegraph summarized his view as Strategy facing a grim outcome: "Sell BTC to pay preferred dividends" or "Suspend dividends." Benzinga also summarized the bad options Dorman laid out: selling BTC would dampen Bitcoin market sentiment, selling stock would dilute MSTR, issuing debt would hurt credit, and cutting preferred dividends could crash preferred share prices and trigger legal risks. CryptoQuant also warned that Strategy's dividend coverage had sharply declined, urging the company to pause BTC purchases and rebuild cash reserves.

Last Monday, Strategy responded with a major capital management overhaul. The company adopted a new "Digital Credit Capital Framework," centered on five tools: a board-approved dollar reserve policy, a revised STRC dividend policy, a $1 billion preferred stock buyback authorization, a $1 billion MSTR common stock buyback authorization, and a BTC monetization plan. The board also raised STRC's annual dividend rate from 11.5% to 12%, effective for the semi-monthly interest period starting July 1.

The market acknowledged the response. On Monday, MSTR rose 12.6% to about $92.70, and STRC rose 12.2% to about $83.70. As of Thursday afternoon, STRC was trading near $87, still significantly below par but notably recovered from its lows, while MSTR was around $100 and BTC had modestly recovered to about $61,763.

The move is smart for Strategy, but it may not permanently resolve the structural issues. Strategy still holds a large preferred stock stack and carries significant recurring payment obligations. These obligations will only increase as the company's $6.7 billion in outstanding convertible notes mature in 2027 and 2028. Strategy's "engine" still relies on the ongoing financing capacity of BTC, MSTR, and its preferred stock. Admittedly, in a sense, Monday's move merely kicked the can down the road. But it kicked it quite far.

Galaxy's conclusion is as follows:

The market's core concern has never been that Strategy has insufficient assets. The company holds approximately 847k BTC, making it the second-largest holder globally, behind only Satoshi Nakamoto (estimated to hold about 1.1 million BTC). The market's worry is that Strategy lacks sufficient dollar liquidity to comfortably pay preferred dividends without harming any stakeholder group. Selling BTC could be seen by Bitcoin holders as a betrayal of Saylor's "never sell Bitcoin" creed; issuing additional MSTR would dilute common shareholders, and not for BTC accumulation; repeatedly raising STRC's dividend rate to entice the price back to $100 par would push up preferred financing costs; and suspending preferred dividends (which the company can do at its discretion) would shatter confidence in the entire digital credit structure.

By raising over $1 billion in cash through common stock offerings, establishing a minimum cash reserve policy of at least 12 months, and extending the current cash coverage period to about 17 months, Strategy successfully turned the tide of sentiment. The market had feared a near-term cash crunch, and Strategy bought itself ample breathing room. However, the most important aspect of Monday's announcement was not any specific action, but the suite of tools authorized by the board, giving Strategy true operational optionality. This is the deeper meaning behind Strategy CEO Phong Le's remark that "Strategy is evolving from one-way capital issuance to active capital management." Strategy signaled to the market that it has the ability to manage both sides of its balance sheet, rather than hoarding BTC regardless of market conditions.

The most controversial part of the announcement is the "BTC monetization" plan. The wording seems to clearly imply that Strategy may sell BTC from time to time, and given the company's tendency to act quickly after announcements, it is entirely possible that it has already sold BTC in the market this week. We would prefer not to see Strategy sell Bitcoin. The company's identity, and a key foundation of the MSTR premium over the years, is built on the premise of providing a leveraged, perpetual, institutional-grade long-term BTC exposure vehicle, and selling BTC would erode this narrative. Moreover, BTC sales could trigger a reflexive negative cycle: the more investors believe Strategy might sell BTC, BTC weakness would transmit to MSTR and STRC weakness, raising expectations of further sales. But we understand why the board needs this "relief valve." A company holding 847,363 BTC should not fall into an existential narrative crisis due to temporary cash flow anxiety—the criticism and panic from some market participants recently have become increasingly hysterical. If selling a small portion of holdings can avoid a capital structure disorder spiral, protect preferred shares, and allow Strategy to wait for better market conditions, it is a reasonable path.

Nevertheless, there is a fourth option that has not received enough attention: Strategy should explore ways to generate yield from its BTC holdings without necessarily spot selling. This could mean lending out a small portion of segregated custody BTC under conservative terms, or using options strategies to harvest volatility returns while retaining most of the upside. Such structured transactions could monetize a portion of holdings while controlling counterparty, custody, and tenor risks. These ideas are not without risk (lending introduces counterparty risk, options may cap upside), and excessive operations could harm what MSTR holders value most: Bitcoin's asymmetric upside exposure. But Strategy does not need to monetize its entire holdings; even a limited, tightly risk-controlled plan could generate recurring dollar income, reducing the need to choose between spot sales and equity dilution. This attractive middle ground deserves to be part of the discussion.

In summary, we are confident that Strategy's decision to enhance its operational optionality is wise. The current Bitcoin market environment is quite weak, and the bottom may not yet be confirmed. Sometimes the best trade is to do nothing, and Strategy's move should buy it time to wait for market conditions to improve.