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

Note: The announcement released by Strategy last Monday marks a major turning point for the world's largest corporate Bitcoin holder. The market has bought into it, but can this move silence the critics? This article was published in Galaxy Research's weekly research brief on July 3rd, translated by Golden Finance's xiaozou.

Michael Saylor's Strategy (MSTR) announced a major overhaul of its capital management framework last Monday, following weeks of significant pressure on its preferred stock "digital credit" product line.

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

The debate quickly focused on three painful options: selling Bitcoin, diluting MSTR shareholders through additional common stock issuance, or suspending/cutting preferred stock dividends. Arca Chief Investment Officer Jeff Dorman, one of the most outspoken critics, argued that Strategy's capital structure pits MSTR shareholders, BTC holders, and preferred shareholders against each other in competition 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 similarly listed the bad options Dorman identified: selling BTC would dampen Bitcoin market sentiment, selling stock would dilute MSTR, issuing debt would hurt credit, and cutting preferred dividends could crash preferred stock prices and trigger legal risks. CryptoQuant also warned that Strategy's dividend coverage ratio had sharply declined, urging the company to pause BTC purchases and rebuild cash reserves.

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

The market acknowledged this 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 around $87, still well below par but significantly recovered from its lows, while MSTR was around $100 and BTC had modestly recovered to about $61,763.

This move was wise for Strategy, but it may not permanently resolve the structural issues. Strategy still holds a large preferred stock stack and bears substantial recurring payment obligations. These obligations will further increase as the company's $6.7 billion outstanding convertible bonds mature in 2027 and 2028. Strategy's "engine" still relies on the continued ability of BTC, MSTR, and its preferred stock to raise capital. In a sense, Strategy's move on Monday merely kicked the can down the road. But it kicked it quite far.

Galaxy's conclusions are as follows:

The market's core concern has never been that Strategy lacks assets. The company holds approximately 847k BTC, making it the second-largest holder globally, second only to Satoshi Nakamoto (who is estimated to hold about 1.1 million BTC). The market's concern is that Strategy lacks sufficient dollar liquidity to comfortably pay preferred stock 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 more MSTR would dilute common stockholders, and not for the purpose of accumulating more BTC; repeatedly raising the STRC dividend rate to lure the price back to $100 par would push up preferred stock financing costs; and suspending preferred dividends (which the company can do at its discretion) would completely collapse 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 cycle to about 17 months, Strategy successfully turned the tide of public opinion. The market had feared short-term cash flow tightness, and Strategy has bought itself ample breathing room. However, the most important aspect of this announcement was not any specific action, but a set of tools authorized by the board that gives Strategy genuine operational options. This is exactly what Strategy CEO Phong Le meant when he said "Strategy is evolving from one-way capital issuance to active capital management." Strategy declared to the market that it has the ability to manage both sides of the 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. Given the company's historical tendency to act immediately after announcements, it is entirely possible that it has already sold BTC in the market this week. We would not like to see Strategy sell Bitcoin. The company's identity, and the cornerstone of the MSTR premium for years, has been built on the premise of "providing a levered, permanent, institutional-grade long-term BTC exposure vehicle." Selling coins would erode this narrative. Moreover, BTC selling could trigger a reflexive negative cycle: the more investors believe Strategy might sell BTC, the more BTC weakness feeds into weakness in MSTR and STRC, raising expectations of further selling. But we understand why the board needs this "pressure release valve." A company holding 847,363 BTC should not be dragged into a survival-level narrative crisis due to temporary cash flow anxiety—some market participants' criticism and panic have recently become increasingly hysterical. If selling a small portion of holdings can avoid a capital structure disorder spiral, protect preferred stock, and allow Strategy to wait for better market conditions, this could be a reasonable path.

Nevertheless, there is a fourth option that has not received enough attention: Strategy should explore generating returns 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 part of the holdings while controlling counterparty, custody, and duration risks. These ideas are not without risks (lending introduces counterparty risk, options may limit upside), and excessive operations could harm what MSTR holders value most: Bitcoin's asymmetric upside exposure. But Strategy does not need to monetize the entire position. Even a limited, tightly risk-controlled plan could generate recurring dollar income, reducing the need to choose between spot selling and equity dilution. This attractive middle ground should be part of the discussion.

In summary, we believe Strategy's decision to enhance its operational options is wise. The current Bitcoin market environment is quite subdued, and the bottom may not yet be found. Sometimes the best trade is to do nothing, and Strategy's move should give it the room to wait for time to pass and for market conditions to improve.