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

Editor’s note: Strategy’s announcement last Monday was a major turning point for the world’s largest corporate holder of enterprise Bitcoin. The market bought it—but will this move shut critics up? This article is from Galaxy Research’s weekly research briefing on July 3, compiled by Golden Finance xiaozou.

Michael Saylor’s Strategy (MSTR) said last Monday it would make a major change to its capital management framework, after its preferred-share “digital credit” product suite faced significant pressure in the past few weeks.

STRC, the company’s flagship “Stretch” series preferred stock, was expected to trade around a $100 par value. However, as Bitcoin has fallen over the past two months, its price has plunged well below par. Strategy’s dollar reserves have shrunk, and investors have begun to question how the company will redeem an ever-growing preferred dividend bill. STRC fell below $83 on June 18, then hit a record low of $71.25 on June 26. At the same time, Strategy’s common shares and BTC were both under pressure.

The debate quickly narrowed to three unappealing options: sell Bitcoin, dilute MSTR shareholders by issuing more common stock, or suspend/reduce preferred dividends. One of the most blunt critics is Jeff Dorman, Chief Investment Officer of Arca. 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 the situation as Strategy facing a grim choice: “Sell BTC to pay preferred dividends” or “Stop issuing dividends.” Benzinga also echoed the bad options Dorman listed: selling BTC would weigh on market sentiment for Bitcoin; selling stocks would dilute MSTR; issuing debt would drag down credit; and cutting preferred dividends could punch through the preferred price and create legal risks. CryptoQuant also warned that Strategy’s dividend coverage has deteriorated sharply, urging the company to pause BTC purchases and rebuild cash reserves.

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

The market accepted the response. On Monday, MSTR rose 12.6% to about $92.70, and STRC jumped 12.2% to about $83.70. As of Thursday afternoon when this was written, STRC was trading around $87—still clearly below par, but rebounding strongly from the lows—while MSTR around $100 saw BTC recover modestly to about $61,763.

This move is fairly sensible for Strategy, but it may not be a permanent fix to the structural problem. Strategy still holds a massive stack of preferred shares and carries heavy recurring payment obligations. And with the company’s $6.7 billion outstanding convertible notes due in 2027 and 2028, these obligations will weigh even more. Strategy’s “engine” still depends on BTC, MSTR, and its preferred shares continuing to have access to financing. To be sure, in a sense, Strategy’s action last Monday only pushed the problem back a bit. But this kick went quite far.

Galaxy’s conclusion is as follows:

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

By raising more than $1 billion in cash via a common share offering, establishing a minimum cash reserve policy of at least 12 months, and increasing the current cash coverage period to roughly 17 months, Strategy managed to turn the tide of public sentiment. The market had been worried about a tight short-term funding chain, but Strategy gave itself ample time to breathe. Still, the most important part of this announcement is not any single action, but rather the board’s authorization of a suite of tools—giving Strategy real choices in how to operate. That is the meaning behind what Phong Le, Strategy’s CEO, said about Strategy evolving “from one-way capital issuance toward active capital management.” Strategy is telling 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 might sell BTC from time to time. Given the company’s past tendency to act immediately after announcements, there is a real possibility it will sell BTC in the market this week. We would prefer not to see Strategy sell Bitcoin. The company’s identity and the key foundation of MSTR’s premium over the years are built on the premise of “providing leveraged, perpetual, institutional-grade long-term BTC exposure tools.” Selling coins would erode that narrative. Moreover, BTC selling could trigger a reflexive negative feedback loop: the more investors believe Strategy might sell, the weaker Bitcoin becomes, and that weakness could transmit to MSTR and STRC, thereby raising expectations for even more selling. Still, 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 from some recent market participants have been edging toward hysteria. If selling a small amount of holdings can prevent a spiral of capital-structure disorder, protect the preferred stock, and allow Strategy to wait for a better market environment, then it may be a reasonable path.

That said, a fourth option has not received enough attention: Strategy should explore how to generate returns from its BTC holdings without being forced to sell spot. This could mean lending out a small portion of segregated, custodial BTC under conservative terms, or harvesting volatility yield via options strategies while keeping most of the upside exposure. Such structured deals can monetize part of the position while controlling counterparty, custody, and tenor risks. These ideas also are not without risk (lending introduces counterparty risk, and options may cap 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 limited scale and a tightly controlled risk-management plan, it can create recurring USD income and reduce the need to choose between spot selling and equity dilution. This appealing middle route should be part of the discussion.

In summary, we are confident that the decision to strengthen Strategy’s operational optionality is sensible. The current Bitcoin market environment is quite lackluster, and the bottom may not be in—or may not yet be fully discovered. Sometimes the best trade is to do nothing, and Strategy’s move should buy it time and space as it waits for the market to turn warmer.