Strategy Sells Shares to Fund Preferred Dividends Amid Bitcoin Holdings

Strategy, a digital asset treasury company, has made headlines recently for its unique approach to managing its bitcoin holdings. In a filing with the SEC, the company revealed that it sold nearly 5.43 million Class A common shares through its at-the-market programme, generating $544.5 million in net proceeds. Notably, this is not being used to buy more bitcoin, but rather to fund a reserve dedicated to paying dividends on preferred stock.

The preferred stock was issued by the company to raise capital and purchase bitcoin in the first place. However, with the premium on strategy's bitcoin holdings having compressed from two to three times market value to just one time net asset value, issuing equity is no longer accretive. In fact, it's now dilutive, as each new share buys only its proportional share of bitcoin.

The company has a fixed annual cash cost of approximately $1.76 billion, which consists of preferred dividends and interest expenses. With the preferred stock not collateralized by Strategy's bitcoin holdings, the dollars needed to pay these obligations must come from somewhere other than the bitcoin itself - unless the bitcoin is sold.