Why Strategy's Capital Stack Is Starting to Show Cracks

**Austin Campbell** (0:00)
Speaking of things that might need a better market structure, let's talk about MicroStrategy.
People have been describing this jokingly as sailors' three-body problem. And what's going on is that for the first time since 2022, and yes, that is correct for all of you who said Strategy sold Bitcoin for the first time ever, you were wrong, they did this before. But for the first time since 2022, Strategy started selling some Bitcoin. They sold 32 BTC largely is what looks like mostly a test transaction because that's $2.5 million per their 8K to fund distributions on preferred stock. Now, that is less than 0.01% of their holdings, but they chose to sell some BTC rather than drawing the cash reserve. And they sold as Bitcoin fell under 72K on the news. Why is this happening? So, their capital stack, I will remind everybody, has equity. It then has preferreds, which are the STRCs of the world, that right now, round numbers seems like they need about $1.5 billion a year in dividends. They have $900 million of cash, and the MNAV is basically at parity, so that's not really a good vehicle for issuing more to make the gains work.
Sailor is saying that our goal is to make STRC the best credit instrument in the world. He called the sale, quote, Ram, a big nothing burger.

**Ram Ahluwalia** (1:31)
Ah, how about you? Oh, Neco, you should come on, join us.

**Austin Campbell** (1:35)
There you go.
Now, let's talk about the bears on the other side of this, though, who are saying maybe it is a problem. So, Jeff Dorman was saying $15 billion in prefs have a $1.5 billion a year dividend. He raised $2 billion via stock, and then used a bunch of it to buy back 2029 maturity bonds. Someone is going to lose badly here, and it will happen in the next four months.
Rich Galvin said that Saylor faces a three-body problem. He can't indefinitely support all of equity, Bitcoin, and the preferred debt stack. Eventually, they fly too close to the sun. So I'm curious, let's start with the capital stack component of this. Do you agree with Dorman's point that now we're in a world where Bitcoin prices are not shooting upward, we have differential interests between equity holders, Bitcoin holders, and the preferred holders? Like, is that conflict real?

**Ram Ahluwalia** (2:33)
I'll launch in there. I said, you have a three-body problem. I think he's right. Unless Bitcoin is coded to go up in perpetuity, which a lot of investors in that believe, and so they dismiss this issue. If however, that does not happen, then you have issues like this.
One of the challenges is that a lot of investors are in Bitcoin because of the velocity. It is an attention asset. I coined that term a few years ago, seeing more of that being used. But here's the issue, there are a lot of assets competing for attention now.
Many, many assets are competing for attention. AI is an example of that.
A lot of things are going up into the right now, too. Biotech has gone up into the right. So that makes it harder. It makes it harder for digital assets. When you're in a momentum market, this is a momentum market, where two standard deviations into a momentum market, and you have an asset that's supposed to have momentum and velocity and it's not running fast, then it cuts against you. That's what we're seeing now. So this is not good when you sell on, even if it's a small number, it doesn't matter. Perception is reality. It's an attention asset. It's not about the 0.1 percent.

**Chris Perkins** (3:54)
Yeah, it's a social consensus asset. One of the largest evangelists of that thesis just sold his assets for the first time. Now, a couple of things. First off, he's a dad and he's acting like a dad. Because a dad has to act in the interests of its shareholders.
Most dads will tell you that they don't like it, they'll grind their teeth, but the right thing for them to do is to sell their underlying tokens when certain conditions are met. I wouldn't say this was necessarily a sale, it was symbolic to say, look, I'm a dad, I need to do certain things to optimize my capital stack. This is a source of funding when I need it. Maybe it's a quest for him to lower his cost basis, because he's provided a degree of centralization into an asset that should be totally decentralized.
By impacting the narrative, by impacting this theme of focus and consensus, you would expect for the price to go lower.
Maybe that's fine, maybe he has some ideas about when he's going to go long again, and obviously, he would never be manipulating markets, but maybe this is going to be an opportunity for him to lower his cost basis in time. The other thing that's challenging with Bitcoin, and Ethereum is a little bit different, other assets, Solana, other assets are a little different. Bitcoin is an inert asset, it is not a yielding asset. When you start offering to investors a yield on an underlying asset that does not yield, it's hard. That's another conundrum that people need to think about. Now, is selling that asset a way to generate that yield that you're promising? It's one of many. Can you hit the ATM if you have a positive MNAV? Yeah, that's another way. But that underlying conundrum, this result in some challenges when you have-