Alex Thorn, head of firmwide research at Galaxy Research, analyzed Strategy’s newly announced Digital Credit Capital Framework as the company seeks solutions for its capital-structure issues amid sizable unrealized losses on its Bitcoin holdings.
Strategy’s capital move: What’s changing?
Strategy, listed on Nasdaq under the ticker MSTR, recently filed an 8-K revealing its Digital Credit Capital Framework. The company, which is well known for its significant Bitcoin reserves totaling 847,363 BTC, faces unrealized losses reported to be approximately $14 billion.
According to the regulatory filing, the framework now allows Strategy to sell up to $1.25 billion worth of Bitcoin. It also officially institutes a USD reserve policy, updates dividend terms for STRC preferred shares, and authorizes individual $1 billion share repurchase programs for both preferred stock and MSTR common shares.
The board allocated $2.55 billion of cash reserves, limiting these funds strictly to paying preferred dividends and servicing debt interest. At the company’s current annual outflows of about $1.76 billion, this reserve would cover roughly 17 months. A full $1.25 billion Bitcoin sale would extend total liquidity to around $3.8 billion, supporting about 26 months of obligations.
In May, Strategy executed its first-ever Bitcoin sale, liquidating 32 BTC for around $2.5 million to fund a dividend payment.
JPMorgan has advised Strategy to focus on raising capital by selling shares rather than liquidating its Bitcoin holdings. Alex Thorn at Galaxy Research said the core question is whether these new measures genuinely fix the company’s capital-structure risks, or merely push them into the future.
Strategy’s leadership, including Chairman Michael Saylor, considers the overhaul essential for financial resilience, with Saylor emphasizing, “digital credit requires liquidity, discipline, and active capital management.”
Mini dictionary: Strategy (MSTR): Strategy is a publicly traded company known for its large-scale Bitcoin investments and active role in digital asset capital management.
Market reaction and investor outlook
Investor interest in the new framework was reflected in the stock market. MSTR shares rose 12.6% to $92.68 on the Monday after the announcement, then climbed past $100 by Wednesday. This represented a 27% gain from the previous Friday’s closing price. STRC preferred shares also moved higher, ending at $87.87 on July 3.
| Asset | Pre-announcement price | Post-announcement price | % Change |
|---|---|---|---|
| MSTR Common Shares | $78.62 | $100+ | +27% |
| STRC Preferred Shares | Not stated | $87.87 | N/A |
Benchmark Equity Research reaffirmed its positive stance by maintaining a Buy rating for MSTR and setting a price target of $570 for the stock.
Benchmark Equity Research views the framework favorably and kept its Buy rating in place, citing enhanced financial flexibility for Strategy.
Other players: Strive and SATA
Strive, another company aiming to build a capital structure backed by Bitcoin, cautioned investors this week against assuming it would issue new SATA preferred shares at the $100 par value due to market volatility.
Jeff Walton, Strive’s chief risk officer, reported that the short interest in SATA shares rose by 1 million in the 30 days ending June 30, while the annualized borrowing cost for the shares jumped from 6.1% to 68.6% during the same period.
Mini dictionary: SATA preferred shares: These represent specialized stock issued by Strive, offering fixed dividends and priority over common shares, but may be affected by short-selling and market dynamics.
