Galaxy: Strategy—use time to make up for space, quietly waiting for the market to warm up

A note: The announcement Strategy released last Monday marks 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 the Galaxy Research weekly research brief dated July 3, compiled by Jinse Finance xiaozou.

Last Monday, Michael Saylor’s Strategy (MSTR) announced a major adjustment to its capital management framework. Previously, its preferred stock “Digital Credit” product suite had come under significant pressure over the past few weeks.

As the company’s flagship STRC, a “Stretch” series preferred stock, was expected to trade around the $100 par value. However, as Bitcoin has fallen over the past two months, its price has dropped far below par. Strategy’s dollar reserves have shrunk, and investors have started to question how the company will settle a preferred dividend bill that keeps growing. STRC fell below $83 on June 18, then reached a record low of $71.25 on June 26. During the same period, Strategy’s common stock and BTC were both under pressure.

The debate quickly narrowed to three awkward options: sell Bitcoin, dilute MSTR shareholders by issuing additional common stock, or suspend/reduce preferred dividends. Jeff Dorman, Chief Investment Officer of Arca, was among the most outspoken critics. He argued that Strategy’s capital structure forces MSTR shareholders, BTC holders, and preferred shareholders to compete against each other for value on the same balance sheet. Cointelegraph summarized his view as Strategy facing a stark outcome: “Sell BTC to pay preferred dividends” or “Suspend dividends.” Benzinga likewise summarized the bad options Dorman listed: selling BTC would weigh on Bitcoin market sentiment; selling stocks would dilute MSTR; issuing debt would hurt credit; and cutting preferred dividends could punch through preferred stock prices and create legal risks. CryptoQuant also warned that Strategy’s dividend coverage ratio has sharply deteriorated, urging the company to pause BTC purchases and rebuild cash reserves.

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

The market validated this response. On Monday, MSTR rose 12.6% to approximately $92.70, while STRC rose 12.2% to approximately $83.70. As of press time on Thursday afternoon, STRC was trading around $87. Although it was still well below par, it had rebounded meaningfully from the lows. Meanwhile, MSTR was around $100, and BTC had modestly recovered to approximately $61,763.

This move is quite sensible for Strategy, but it may not resolve the structural issues once and for all. Strategy still holds a massive stack of preferred shares and is also burdened with large recurring payment obligations. As the company’s $6.7 billion in outstanding convertible bonds mature in 2027 and 2028, these obligations will further intensify. Strategy’s “engine” still depends on BTC, MSTR, and its preferred shares continuing to have financing capability. Admittedly, in a sense, Strategy’s move last Monday was merely postponing the problem by another stretch. But this time, it kicked the can quite far.

Galaxy’s conclusion is as follows:

The market’s core concern has never been that Strategy lacks assets. The company holds about 847,000 BTC, making it the second-largest BTC holder globally after Satoshi Nakamoto (estimated to hold about 1.1 million BTC). What worries the market is that Strategy lacks sufficient dollar liquidity to comfortably pay preferred dividends without harming any stakeholder group. If it sells BTC, Bitcoin holders may view it as a betrayal of Saylor’s “never sell Bitcoin” creed; if it issues more MSTR, common shareholders would be diluted—and not for the purpose of accumulating more BTC; if it keeps raising STRC’s dividend rate to lure the price back to the $100 par value, it would increase the cost of financing preferred shares; and if it suspends preferred dividends (which the company can decide at its discretion), confidence in the entire Digital Credit structure would collapse completely.

By raising more than $1 billion in cash through a common stock offering, establishing a minimum cash reserve policy of at least 12 months, and increasing the current cash coverage cycle to approximately 17 months, Strategy successfully reversed the tide of public opinion. The market had previously worried that the short-term funding chain was tight, and Strategy has given itself ample breathing room. However, the most important part of this announcement is not any specific action, but a series of tools authorized by the board—giving Strategy genuine operational choice. This is exactly what Strategy CEO Phong Le meant when he said that “Strategy is evolving from one-way capital issuance toward active capital management.” Strategy is signaling to the market that it can manage both sides of its balance sheet, rather than ignoring market conditions and simply stockpiling BTC.

The most controversial part of the announcement is arguably the “BTC monetization” plan. The wording seems to clearly suggest 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 key foundation of MSTR’s premium over the years—rests on the premise of providing “a leveraged, perpetual, institutional-grade long-term BTC exposure tool.” Selling coins would erode this narrative. Moreover, BTC selling could trigger a reflexive negative feedback loop: the more investors believe Strategy might sell coins, the more Bitcoin weakness would transmit to weakness in MSTR and STRC, which would then raise expectations of further selling. Still, we understand why the board needs this “pressure relief valve.” A company holding 847,363 BTC should not fall into a survival-level narrative crisis due to temporary cash-flow anxiety—the criticism and panic from some market participants in recent days have become increasingly hysterical. If selling a small portion of holdings can prevent a spiral of disorder in the capital structure, protect preferred stock, and allow Strategy to wait for better market conditions, then this is a reasonable path.

Even so, there is a fourth option that has not received enough attention: Strategy should explore creating yield from its BTC holdings without necessarily needing to conduct spot sales. This could mean lending out a small portion of segregated custody BTC under conservative terms. It could also mean capturing volatility-related returns through options strategies while retaining most of the upside. Such structured transactions can monetize part of the holdings while controlling counterparty, custody, and term risks. These ideas are not without risk (lending introduces counterparty risk, and options may limit upside), and excessive operations would damage what MSTR holders value most: Bitcoin’s asymmetric upside exposure. But Strategy does not need to monetize the entire position. Even with a limited scale and a tightly controlled risk-management plan, it can generate recurring dollar income and reduce the necessity of choosing between spot selling and equity dilution. This attractive “middle route” should be part of the discussion.

In summary, we are confident that Strategy’s decision to enhance its operational options is wise. The current Bitcoin market environment is quite weak, and a bottom may not yet have been found. Sometimes the best trade is to stand pat—and Strategy’s move should give it room to maneuver by buying time and waiting for markets to improve.