Galaxy: Strategy Uses Time to Trade for Space, Waiting for the Market to Turn Warm

Note: The announcement Strategy released last Monday marks a major turning point for the world’s largest corporate Bitcoin holder. The market is buying it, but will this move silence the critics? This article was published in Galaxy Research July 3 weekly research brief, translated by Jinse Finance xiaozou.

Michael Saylor’s Strategy (MSTR) announced last Monday a significant adjustment to its capital management framework. Previously, its preferred stock “digital credit” product system had come under substantial pressure over the past few weeks.

STRC, the company’s flagship “Stretch” series preferred stock, is expected to trade around a $100 par value, but as Bitcoin has declined over the past two months, its price has fallen far below par. Strategy’s dollar reserves have shrunk; investors have begun to question how the company will settle an ever-growing preferred stock dividend bill. STRC broke below $83 on June 18, then hit a record low of $71.25 on June 26. In the same period, Strategy’s common stock and BTC were both under pressure.

The debate quickly narrowed to three embarrassing options: sell Bitcoin, dilute MSTR shareholders by issuing more common stock, or suspend/reduce preferred dividend payments. Jeff Dorman, Arca’s chief investment officer, is one of the most outspoken critics. He argues that Strategy’s capital structure makes MSTR shareholders, BTC holders, and preferred shareholders compete with each other on value on the same balance sheet; Cointelegraph summarized his view as Strategy facing a grim outcome: “sell BTC to pay preferred dividends” or “stop paying dividends.” Benzinga similarly summarized the “bad options” Dorman listed: selling BTC could weigh on Bitcoin market sentiment; selling stock would dilute MSTR; issuing debt would hurt credit; cutting preferred dividends could blow through the preferred stock price and create legal risks. CryptoQuant also warned that Strategy’s dividend coverage ratio has plunged, urging the company to pause BTC buying and rebuild its cash reserves.

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

The market recognized the response. On Monday, MSTR rose 12.6% to about $92.70, while STRC rose 12.2% to about $83.70. As of Thursday afternoon when this was published, STRC was trading around $87. Although still well below par, it had rebounded notably from its lows; MSTR, meanwhile, was around $100, with BTC recovering mildly to about $61,763.

This move is fairly prudent for Strategy, but it may not solve the structural problem once and for all. Strategy still holds a massive preferred stock stack and is also burdened by large recurring payment obligations. And 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 stack being able to secure ongoing financing. Admittedly, in a sense, Strategy’s move last Monday is just pushing the problem back a bit. But it pushes it quite far.

Galaxy’s conclusion is as follows:

The market’s core concern has never been that Strategy lacks assets. The company holds about 847k BTC, making it the world’s second-largest corporate holder of the coin after Satoshi Nakamoto (estimated to hold about 1.1 million BTC). The market worries that Strategy lacks sufficient dollar liquidity to pay preferred dividends comfortably without damaging any group of stakeholders. If it sells BTC, Bitcoin holders may view it as betrayal of Saylor’s “never sell Bitcoin” creed; if it issues more MSTR, common shareholders will be diluted—and not to buy more BTC. If it keeps raising the STRC dividend rate to lure the price back to the $100 par value, it will increase the preferred stock’s cost of financing. If it suspends preferred dividend payments (the company can decide at its discretion), confidence in the entire digital credit structure will collapse completely.

By raising more than $1 billion in cash through a common stock offering, establishing at least a 12-month minimum cash reserve policy, and lifting the current cash coverage period to about 17 months, Strategy successfully turned the narrative. The market had previously worried about a tight short-term funding chain, but Strategy has given itself plenty of breathing room. However, what matters most in this announcement is not any specific action—it is the board’s authorization of a range of tools, giving Strategy real flexibility in how it operates. This is the meaning behind what Strategy CEO Phong Le said: “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—not simply ignore market conditions and stockpile BTC.

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 soon after announcements, the possibility that it has already sold BTC this week is fully plausible. We would prefer not to see Strategy sell Bitcoin. The company’s identity and an important foundation of the long-standing MSTR premium are built on the premise of “providing leveraged, perpetual, institutional-grade long-term BTC exposure tools.” Selling coins would erode this narrative. Moreover, BTC selling could trigger a reflexive negative feedback loop: the more investors believe Strategy might sell BTC, the weaker BTC becomes, and that weakness then spills over to hurt MSTR and STRC, which in turn raises further expectations of selling. But we understand why the board needs this “pressure-release valve.” A company holding 847,363 BTC should not fall into a survival-level narrative crisis due to temporary cash flow anxiety—criticism and panic among some recent market participants have been gradually tipping into hysteria. If selling a small amount of holdings can avoid a spiral of capital structure disorder, protect the preferred stack, and allow Strategy to wait for a better market environment, then it is a reasonable path.

Even so, there is a fourth option that hasn’t received enough attention: Strategy should explore creating yield from its BTC holdings without necessarily having to sell spot. This could mean lending out a small portion of conservatively isolated, custodied BTC under conservative terms. It could also mean harvesting volatility via options strategies while preserving most upside potential. Such structured trades can monetize part of the holdings while controlling counterparty, custody, and maturity risks. These ideas are not without risk (lending introduces counterparty risk, and options may limit upside). And over-managing would damage what MSTR holders value most: Bitcoin’s asymmetric upside exposure. But Strategy doesn’t need to monetize the entire position; even with limited size and a tightly controlled risk-management plan, it could generate recurring dollar income, reducing the need to choose between spot selling and equity dilution. This attractive middle path should be part of the discussion.

In summary, we are confident that Strategy’s decision to enhance operational flexibility is wise. The current Bitcoin market environment is quite sluggish, and the bottom may not yet be fully identified. Sometimes the best trade is to stand pat—and this move by Strategy should give it room to buy time and wait for the market to improve.