Original author: Emil Sandstedt
Original translation: TechFlow
It’s been half a year since I first published a report on the company then known as MicroStrategy (now Strategy). In addition to the name change, the company has expanded its range of financial products, further accumulated Bitcoin, and pushed many companies to follow Michael Saylor’s strategic model. Today, Bitcoin reserve companies seem to be everywhere.
Now it’s time for an update where we’ll explore whether these Bitcoin reserve companies are operating in line with the predictions made in the initial report and once again try to summarize where this is all ultimately headed.
Alarm bells ringing
In December, the company looked nearly unbeatable: its Bitcoin earnings KPI was accumulating at an incredible annual rate of over 60%, and optimism was high. No wonder most of the arguments carefully laid out in the report released at the time were either ridiculed, ignored, or maliciously challenged with calls to short the stock. The stock price, denominated in USD or Bitcoin, is roughly flat at the time of writing, providing little evidence to support the predictions.
Sadly, few people understand or even realize the most important conclusion of my December report—which concerns the source of Bitcoin’s gains. Therefore, we will reiterate the problems with this metric for the company and why it should raise red flags for any serious investor.
Bitcoin earnings — the growth in bitcoin per share — actually flows from the pockets of new shareholders to old shareholders.
Many of the new shareholders purchased shares in the hope that they would also receive high Bitcoin returns, but these returns came either directly from the purchase of Strategy common stock through the companys record-breaking ATM (at-the-market) offering, or indirectly from the purchase of shares loaned out (and subsequently sold) by neutral hedge funds that held the companys convertible bonds. This is the Ponzi part of the companys operation - publicly touting Bitcoin returns that are far higher than any traditional returns, while obscuring the fact that these returns do not come from the sale of the companys goods or services, but from the new investors themselves. They are the source of the returns, and the harvesting of their hard-earned money will continue as long as they are willing to provide the funds. The scale of this harvest is proportional to the degree of obfuscation, which can be measured by the premium of common stock over the companys net assets. This premium is continuously cultivated and maintained through complex but attractive corporate narratives, promises, and financial products.
Because the term “Ponzi scheme” has been used so frequently to attack the Bitcoin space over the past decade or so, many Bitcoin enthusiasts have become accustomed to — and justifiably so — ignoring such criticism altogether.
But to be clear, even if a company in the Bitcoin space intentionally or unintentionally constructed a Ponzi scheme, this does not mean that Bitcoin itself is a Ponzi scheme. The two are separate assets. Ponzi schemes existed in the past when metals were the monetary standard, but this does not mean that precious metals themselves were or are Ponzi schemes. When I make this accusation against Strategy at this stage, I am speaking from a definitional perspective, not from idle hyperbole.
The accumulation continues
Before we draw any further conclusions, we need to review the contents of the initial report and sort out the relevant decisions made by the company in the past six months.
Strategy announced on December 9 last year that it had purchased approximately 21,550 Bitcoins for approximately $2.155 billion (an average price of approximately $98,783 per Bitcoin). The purchase was made using funds from the ATM (“at-market”) distributions of the famous “21/21 Program” launched earlier that year. Just a few days later, the company purchased more than 15,000 Bitcoins through ATM distributions, and later announced the purchase of approximately 5,000 more Bitcoins.
At the end of 2024, the company submitted a revised proposal to shareholders to increase the number of authorized shares of Class A common stock from 330 million to 10.33 billion shares - a 30-fold increase. At the same time, the number of authorized shares of preferred stock was also increased from 5 million to 1.005 billion shares - a 200-fold increase. Although this is not equivalent to the full number of shares actually issued, the move provides the company with greater flexibility in future financial operations as the 21/21 Plan is rapidly approaching its end. By focusing on preferred shares at the same time, the company can also explore another way to raise funds. By the end of 2024, Strategy held a total of approximately 446,000 Bitcoins, with a Bitcoin yield of 74.3%.
Perpetual preferred stock
At the start of the new year, Strategy filed an 8-K document indicating that it was ready to seek a new round of financing through preferred stock. This new type of financial instrument, as its name implies, will take precedence over a companys common stock, meaning that preferred stockholders have a stronger claim on future cash flows.
The initial financing target was $2 billion. As of January 12, the company had accumulated 450,000 bitcoins during the preparation of the new instrument. At the end of the month, the company called for the redemption of all convertible bonds due in 2027 and exchanged them for newly issued shares, because the conversion price was lower than the market price of the shares. For those deeply profitable Strategy convertible bonds, the largest buyers - funds doing gamma trading and neutral hedging - usually choose to convert early and then issue new convertible bonds instead of holding the old bonds until maturity.
On January 25, 2025, the company finally filed a prospectus for Strike perpetual preferred stock ($STRK) . A week later, about 7.3 million Strike shares were issued, with a cumulative dividend of 8% on a $100 liquidation preference per share. In practice, this means that the quarterly dividend of $2 per share will be paid in perpetuity or will cease when Strike shares are converted into Strategy shares (when the latter reaches $1,000). The conversion ratio is defined as 10:1, that is, for every 10 Strike shares, one Strategy share can be converted. In other words, this instrument is similar to a dividend-paying perpetual call option on Strategy common stock. If necessary, Strategy can choose to pay dividends in the form of its common stock. By February 10, the company purchased about 7,600 bitcoins using the proceeds from the Strike offering and the proceeds from the ATM offering of common stock.
On February 21, Strategy issued $2 billion worth of convertible bonds, with a maturity date of March 1, 2030, a conversion price of approximately $433 per share, and a conversion premium of approximately 35%. With this financing, the company can quickly purchase approximately 20,000 bitcoins. Soon after, the company issued a new prospectus allowing the issuance of up to $21 billion of Strike perpetual preferred stock, which means that last years already ambitious 21/21 plan seems to be evolving into a new plan of even greater scale.
The dispute and pace of perpetual preferred stocks: the appearance of Strife and Stride
After the company publicly announced an expansion of its ambitious fundraising plans, a new vehicle was launched - perpetual preferred stock called Strife ($STRF). Similar to Strike, Strife plans to issue 5 million shares, providing a 10% annual cash dividend - paid quarterly - instead of Strikes 8% cash or common stock dividend. Unlike Strike, Strife does not have an equity conversion feature, but it has a higher priority than common stock and Strike. Any dividend delay will be compensated by higher dividends in the future, up to a total annual dividend rate of 18%. At the time of the issuance, the originally planned 5 million shares appeared to have increased to 8.5 million shares, raising more than $700 million in funds. Through the common stock and Strikes ATM issuance activities, Strategy finally announced that its Bitcoin holdings exceeded 500,000 in March. April was mainly carried out with regular ATM activities for common stock until this financing method was almost exhausted. Strike’s ATM activity also continued, but the amount of funds raised was negligible due to likely low liquidity. With these funds, Strategy’s total Bitcoin holdings exceeded 550,000.
On May 1, Strategy announced plans to initiate another $21 billion common stock ATM offering. This announcement came on the heels of the exhaustion of the ATM portion of the initial “21/21 Plan,” fully validating the logic previously reported and expounded on on the X Platform. Since any NAV premium creates an arbitrage opportunity for the company, management will inevitably continue to issue new shares that are overvalued relative to the underlying Bitcoin asset to capture this premium. The offerings began almost immediately, allowing more Bitcoin to accumulate. With the fixed income portion of the initial “21/21 Plan” expanded by new preferred shares, investors are now faced with a massive “42/42 Plan,” or up to $42 billion in common stock offerings and $42 billion in fixed income securities offerings. May also saw the company file with the SEC for a new $2.1 billion Strife Perpetual Preferred Stock ATM offering. At the end of the month, all three ATM offerings were printing shares for the purchase of new Bitcoin.
In early June, the company announced another new instrument: Stride ($STRD), a perpetual preferred stock asset similar to Strike and Strife, which will be launched soon. Stride offers an optional non-cumulative cash dividend of 10%, has no equity conversion feature, and has a lower priority than all other instruments, only higher than common stock. Slightly less than 12 million shares were initially issued, valued at approximately $1 billion, paving the way for the company to add approximately 10,000 bitcoins.
The dazzling puzzle piece of Bitcoin Vault
With the launch of the STRK, STRD and STRF products, and Strategy’s “21/21 Plan” in full swing, the full picture of what has happened over the past six months should be clearer.
In my initial report, I pointed out that the primary logic of the convertible bonds was not to provide an opportunity to a portion of the market that needed and desired Bitcoin exposure, as the company claimed. In reality, the buyers of the bonds were almost all funds with neutral hedge strategies that were simultaneously shorting Strategys shares and therefore never actually received Bitcoin exposure. This was nothing more than a scam. The real reason Strategy offered these securities to lenders was to create the impression of financial innovation targeting a trillion-dollar industry for retail investors, while enabling further Bitcoin accumulation without diluting equity. And as investors bid up the common stock, the net asset price difference and the opportunity for risk-free Bitcoin gains grew proportionally. The greater the economic confusion, coupled with Michael Saylors rhetorical skills and vivid metaphors, the greater the arbitrage opportunities the company could obtain.
By issuing three different perpetual preferred stock securities in the past six months, in addition to various convertible bonds that already existed, these complex financial products can now create the appearance of financial innovation, thereby further driving the common stock bidding.
At the time of writing, the common stock is trading at nearly two times net assets. This is a remarkable achievement for the companys management, given the size and activity of the common stock ATM offering. This means that Strategy can buy approximately two Bitcoins for the price of one Bitcoin in a risk-free manner.
In 2024, the company benefited from the popular “reflexive flywheel” theory, which states that the more Bitcoin a company buys, the higher its stock price will rise, creating more opportunities to buy Bitcoin.
By 2025, this self-referential logic has shifted slightly, evolving into a “torque” narrative, which is reflected in the company’s official description: the gears of fixed income drive the core of common stocks, and Bitcoin earnings are the product of this “mechanical device.” However, few investors seem to question where these earnings come from and how they are generated, and instead blindly cheer and celebrate this fictional dynamic.
Preferred stocks are financial assets and are not subject to the laws of physics. It’s not surprising that Saylor, an engineer, uses these fallacious analogies to make it seem like the Bitcoin gains are derived from some kind of financial alchemy. However, since the company has no actual revenue to speak of and no real banking business (the company borrows but does not lend), the Bitcoin gains can ultimately only be derived from the Ponzi element mentioned earlier in the company’s business model: attracting retail investors through a carefully crafted narrative so that they bid up the price of the common stock, allowing the opportunity for Bitcoin gains to be realized. As for the Bitcoin gains derived from various debt instruments, they cannot yet be considered fully realized because the debt will eventually need to be repaid. Only the Bitcoin gains generated through the common stock ATM issuance are immediate and final - these are the real profits.
The Bubble of Bitcoin Vault Companies
Whether or not they realize that narratives cannot always influence reality, Strategy’s concept of Bitcoin gains has spread rapidly among management teams of many small companies around the world. CEOs of various companies have witnessed Strategy insiders accumulate huge wealth by continuously selling stocks to retail investors, and have begun to emulate this model. The continuous selling behavior of Strategy insiders can be verified by viewing numerous Form 144 filings.
Many companies have successfully implemented this strategy, allowing management and old shareholders to profit at the expense of new shareholders. But this will all end. Many companies have turned to bold Bitcoin vault strategies due to difficulties or even failures in their traditional main businesses. These companies will be the first to have to sell Bitcoin assets to repay creditors when the situation deteriorates. Michael Saylor himself once admitted that he was also in a desperate state before discovering Bitcoin.
Metaplanet, which used to operate as Red Planet Japan, had struggled to become profitable in Japans budget hotel sector.
Before Méliuz SA’s desperate shift to a Bitcoin acquisition strategy, it underwent a 100:1 reverse stock split.
Vanadi Coffee SA, which operates five cafes and a bakery in Spain’s Alicante region, was on the verge of bankruptcy, but its shift to a Bitcoin strategy seemed to have miraculously boosted its stock price.
Infamous meme stock company Trump Media Technology, which has no revenue to speak of, is now seeking billions of dollars to create a bitcoin vault company to rescue its stock price, which is at an all-time low.
Bluebird Mining Ventures Ltd is also desperate – at least judging by its share price – and recently decided to sell all the gold it mined to fund its purchase of Bitcoin as a treasury asset; as of this writing, its share price is up nearly 500% in a month.
H100 Group, a small and until recently struggling Swedish biotech company, has seen its investors receive returns of around 1,500% in a month as of this writing, after Blockstream CEO Adam Back funded the company through some type of convertible bond to support its Bitcoin treasury strategy.
There are many examples like this, but I think the point is made: it is not Microsoft, Apple or Nvidia that become Bitcoin vault companies, but those companies that are on the verge of failure and have no way out. Jesse Myers, a supporter of Strategy and a direct influencer of Michael Saylors Bitcoin valuation model, once said:
“[…] MicroStrategy, Metaplanet, and Gamestop are zombie companies. They all need to take a hard look at themselves and admit that we can’t continue on our original strategic path. We have to completely rethink how to create value for shareholders.”
These troubled companies looked to Michael Saylor and his Strategy as a clear path to riches. By emulating this so-called financial alchemy, they are now all involved in a massive wealth transfer as the Bitcoin Vault Company bubble is coming to an end.
When the puzzle pieces fall apart
While Strike, Strife, and Stride are part of the puzzle of this impressive company, they take precedence over equity. The same is true for convertible bonds, not all of which are currently profitable. Future free cash flows will always need to satisfy the needs of holders of these instruments before the remainder can be distributed to holders of common stock. In good economic times, this is obviously not a problem, as the companys debt ratio is relatively low; but in bad economic times, the value of the companys assets can drop significantly, and the debt obligations still exist - like a towering threat hanging over any new creditors. Due to a phenomenon known as Debt Overhang, any new creditor will be hesitant to borrow money to repay other debt obligations. Narratives and exaggerations that are intoxicating at first can eventually backfire on their creators.
All of this is exacerbated by the fact that the Bitcoin bear market lasts longer. At that time, many troubled Bitcoin vault companies will further exert selling pressure on the asset. In other words, the more popular Strategys strategy is, the deeper the future Bitcoin crash will be, which may completely destroy the equity value of most companies that stick with this strategy until the last minute.
Bottom line: Michael Saylor likes Bitcoin. He, like the rest of us, prefers having more Bitcoin to having less Bitcoin. Therefore, it is extremely naive to think that he would ask company management to pass up an opportunity that is, by definition, an arbitrage opportunity.
When common stock trades at a premium to net assets, the company can generate risk-free profits for old shareholders by transferring wealth to buyers of newly issued stock. This behavior will continue in the form of larger ATM issuances of common stock, along with some new and obscure innovative products, despite protests or complaints about dilution.
The proof of this is that my prediction from March this year has been validated: less than a month and a half later, the company announced a new $21 billion ATM offering. If Strategy does not take advantage of this arbitrage opportunity, then all the imitators will rush to seize it and increase their Bitcoin reserves in the same risk-free way. In this crazy race to expand arbitrage opportunities, companies will take on debt in various forms, and the potential risk will increase accordingly.
In the next Bitcoin bear market, Strategys stock price will fall to - and eventually fall below - its NAV per share, imposing large Bitcoin-denominated losses on investors who purchased shares at a premium today. The best action Strategy investors can take today is to do what the company and its insiders are doing: sell the shares!
Bitcoin is no longer the primary strategy for this company or any of the Bitcoin vault companies that are popping up; you are.
