Strategy Inc.'s Bitcoin-Fueled Model Unravels as Growth Slows

Strategy Inc., which trades like a leveraged bet on Bitcoin's price, has seen its model falter as the cryptocurrency's growth slows. In an appearance on the Unchained Podcast, Arthur Hayes noted that Strategy's structure is punished by sideways price action. The stock's market value to net asset value (mNAV) is compressed to 1.01x and its basic and diluted measures sit near 0.73x and 0.74x.

Hayes argued that Strategy has three options, each with a cost: issue new shares, which dilutes existing holders; sell Bitcoin outright, cutting against the 'never sell' identity built by the stock's following; or trim dividends on its preferred shares, risking income-focused investors who bought in for yield rather than bitcoin exposure.

Strategy held 818,334 BTC at an average cost of $75,537 each and had roughly $1.5 billion a year in combined obligations on two preferred-stock instruments. At the pace those dividends were running in May, the company had roughly 18 months of coverage before needing a new funding source.

Hayes' broader argument is that Strategy's original reason for existing, letting investors pay extra for equity-funded bitcoin exposure, stops making sense once Bitcoin's price grinds sideways rather than compounds higher. He suggests that investors can simply buy a spot exchange-traded fund (ETF) instead of paying for Strategy's leverage or carrying its dividend overhang.