In the crazy Coin Hoarding wave led by Strategy, you are the real "strategy".

Author: Emil Sandstedt

Compiled by: Deep Tide TechFlow

It has been half a year since I first published a report about the company then known as MicroStrategy (now renamed to Strategy). In addition to changing its name, the company has also expanded the variety of its financial products, further accumulated Bitcoin, and has encouraged many companies to follow Michael Saylor's strategic model. Today, Bitcoin reserve companies seem to be everywhere.

It is time for an update, and we will explore whether the operations of these Bitcoin reserve companies align with the predictions in the initial report, and once again try to summarize where all of this will ultimately lead.

####Alarm bells ring

In December last year, the company seemed almost invincible: its Bitcoin returns key performance indicators (KPIs) accumulated at an astonishing annual growth rate of over 60%, with optimism running high. No wonder most of the arguments carefully articulated in the report released at that time were either mocked, ignored, or maliciously challenged with calls to short the stock. The stock price, measured in USD or Bitcoin, is basically flat compared to that time, with almost no evidence currently provided to support the predictions.

Unfortunately, few people understand or even realize the most important conclusion from my report last December— it concerns the sources of Bitcoin profits. Therefore, we will reiterate the issues surrounding this metric for the company and why it should raise concerns for any serious investor.

Bitcoin gains - that is, the increase per share of Bitcoin - actually flow from the pockets of new shareholders to those of older shareholders.

Many new shareholders buy stocks hoping to achieve high Bitcoin returns, but these returns either come directly from the record-breaking issuance of ordinary shares through the company’s ATM ("at market price") purchase strategy, or indirectly from purchasing shares borrowed by neutral hedge funds holding the company's convertible bonds (which are then sold). This is precisely the Ponzi aspect of company operations – publicly bragging about Bitcoin returns far exceeding any traditional profits while concealing a fact: these returns do not originate from the sale of the company's goods or services, but rather 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 funds. The scale of this harvesting is proportional to the level of confusion, which can be measured by the premium of ordinary shares relative to the company’s net assets. This premium is cultivated and maintained through complex yet enticing corporate narratives, promises, and financial products.

Since the term "Ponzi scheme" has been frequently used to attack the Bitcoin space over the past decade, many Bitcoin enthusiasts have become accustomed to—and have reason to—completely ignore such criticisms.

But it needs to be clear that even if a company in the Bitcoin space intentionally or unintentionally constructs a Ponzi scheme, it does not mean that Bitcoin itself is a Ponzi scheme. The two are independent assets. In the past, during the era when metals were the standard for currency, Ponzi schemes also existed, but that does not mean that precious metals themselves were or are Ponzi schemes. When I made this accusation against Strategy Company at this stage, I approached it from a definitional perspective, rather than from a bored exaggeration.

####The accumulation is still ongoing.

Before drawing further conclusions, we need to review the content of the initial report and sort out the relevant decisions made by the company in the past six months.

Strategy Company announced on December 9 last year that it had purchased approximately 21,550 bitcoins at a price of about $2.155 billion (with an average price of about $98,783 per bitcoin). This purchase was made using funds raised through the famous "21/21 Plan" ATM ("At Market Price") launched earlier that year. Just a few days later, the company purchased over 15,000 bitcoins through the ATM issuance and subsequently announced the purchase of an additional approximately 5,000 bitcoins.

By the end of 2024, the company submitted a proposal to shareholders to increase the authorized share count of Class A common stock from 330 million shares to 10.33 billion shares—an increase of 30 times. At the same time, the authorized share count of preferred stock was also increased from 5 million shares to 1.005 billion shares—an increase of up to 200 times. Although this does not equate to the total number actually issued, this move provides the company with greater flexibility for future financial operations, as the "21/21 Plan" is rapidly approaching completion. By focusing on preferred stock simultaneously, the company can also explore another financing avenue. By the end of 2024, Strategy Company held approximately 446,000 bitcoins, with a bitcoin return rate of 74.3%.

####Permanent Preferred Stock

At the beginning of the new year, Strategy Company submitted an 8-K filing, indicating that it is ready to seek a new round of financing through preferred stock. This new type of financial instrument, as its name suggests, will take precedence over the company's common stock, meaning that preferred stockholders have a stronger claim to future cash flows.

The initially set financing target was $2 billion. During the preparation of the new tools, as of January 12, the company had accumulated 450,000 bitcoins. By the end of the month, the company requested to redeem all convertible bonds due in 2027 and exchange them for newly issued shares, as the conversion price at that time was lower than the market price of the shares. For those Strategy convertible bonds that were "deeply profitable," the largest buyers—funds engaging in gamma trading and neutral hedging—typically chose to convert early and then issue new convertible bonds, rather than holding the old bonds until maturity.

On January 25, 2025, the company finally submitted the prospectus for Strike perpetual preferred stock ($STRK). A week later, approximately 7.3 million shares of Strike stock were issued, specifying a cumulative dividend of 8% with a liquidation preference of $100 per share. In practice, this means that a quarterly dividend of $2 per share will be paid perpetually, or will cease to be paid when the Strike stock is converted into Strategy stock (when the latter's price reaches $1,000). The conversion ratio is defined as 10:1, meaning that every 10 shares of Strike stock can be converted into 1 share of Strategy stock. In other words, this instrument is similar to a perpetual call option that pays dividends, linked to Strategy common stock. If necessary, Strategy Company may choose to pay dividends in the form of its common stock. By February 10, the company had used the proceeds from the issuance of Strike and ordinary stock ATM issuance to purchase approximately 7,600 bitcoins.

On February 21, Strategy Company issued convertible bonds worth $2 billion, with a maturity date of March 1, 2030, and a conversion price of approximately $433 per share, representing a conversion premium of about 35%. With this financing, the company can quickly purchase around 20,000 bitcoins. Shortly after, the company released a new prospectus allowing for the issuance of up to $21 billion in Strike perpetual preferred stock, indicating that last year's ambitious "21/21 plan" seems to be evolving into a larger-scale new plan.

####The Dispute and Progress of Permanent Preferred Shares: The Arrival of Strife and Stride

After the company's public announcement of its ambitious financing plan expansion, a new tool has been launched - a permanent preferred stock named Strife ($STRF). Similar to Strike, Strife plans to issue 5 million shares, providing a 10% cash dividend per year - paid quarterly - instead of Strike's 8% cash or common stock dividend. Unlike Strike, Strife does not have a conversion feature, but it holds a higher priority over common stock and Strike. Any delay in dividends will be compensated by future higher dividends, with a total annual dividend rate of up to 18%. At the time of issuance, the initially planned 5 million shares seemed to have increased to 8.5 million shares, raising over $700 million in funding. Through common stock and the ATM issuance activities of Strike, Strategy Company finally announced in March that its Bitcoin holdings exceeded 500,000 coins. In April, the regular ATM activities focused mainly on common stock until this financing method was almost exhausted. The ATM activities of Strike also continued, but due to potentially lower liquidity, the amount of funds raised was negligible. With these funds, Strategy's total Bitcoin holdings surpassed 550,000 coins.

On May 1, Strategy announced plans to launch another $21 billion common stock ATM issuance. This statement follows closely after the initial ATM portion of the "21/21 plan" was exhausted, fully validating previous reports and the logic outlined on the X platform. Since any net asset value premium creates arbitrage opportunities for the company, management is sure to continue issuing new shares that are overpriced relative to the underlying Bitcoin asset value to capture this premium. The issuance almost immediately began, allowing for more Bitcoin accumulation. With the fixed income portion of the initial "21/21 plan" expanded by the new preferred shares, investors now face a massive "42/42 plan," which includes up to $42 billion in common stock issuance and $42 billion in fixed income securities issuance. May also saw the company submit a new $2.1 billion Strife perpetual preferred stock ATM issuance application to the U.S. Securities and Exchange Commission (SEC). By the end of the month, all three ATM issuances were printing shares to buy new Bitcoins.

In early June, the company announced another new tool: Stride ($STRD), a perpetual preferred stock asset similar to Strike and Strife, which is set to launch soon. Stride offers a 10% optional non-cumulative cash dividend and does not have equity conversion features, with a priority lower than all other instruments, only above common stock. Initially, just under 12 million shares were issued, valued at approximately $1 billion, paving the way for the company to add about 10,000 bitcoins.

####The dazzling puzzle of Bitcoin Vault Company

With the launch of the STRK, STRD, and STRF products, along with the full rollout of Strategy's "21/21 Plan", the overall picture of what has happened in the past six months should be clearer.

In the initial report, I pointed out that the main logic of convertible bonds is not, as the company claims, to provide opportunities for those in the market who need and desire exposure to Bitcoin. In fact, the buyers of the bonds are almost all funds that adopt a neutral hedging strategy, shorting the stocks of the Strategy at the same time, and thus never truly obtaining exposure to Bitcoin. This is just a scam. The real reason Strategy provides these securities to lenders is to create an impression of financial innovation targeting a trillion-dollar industry for retail investors while achieving further accumulation of Bitcoin without diluting equity. As investors bid for common stock, the net asset price differential and the opportunities for risk-free Bitcoin returns also increase proportionally. The greater the economic confusion, combined with Michael Saylor's rhetorical skills and vivid metaphors, the greater the arbitrage opportunities the company can seize.

In the past six months, by issuing three different types of perpetual preferred stock securities, along with various existing convertible bonds, these complex financial products are now able to create the appearance of financial innovation, thereby further driving the bidding for common stocks.

At the time of writing this article, the trading price of common stock is close to twice its net asset value. Considering the scale and activity of the common stock ATM issuance, this is a remarkable achievement for the company's management. This means that Strategy can purchase about two bitcoins at the price of one bitcoin in a risk-free manner.

In 2024, the company will benefit from the popular "reflexive flywheel" theory, which posits that the more Bitcoin the company purchases, the higher its stock price will be, thereby creating more opportunities to buy Bitcoin.

By 2025, this self-referential logic undergoes a slight transformation, evolving into a "torque" narrative, which is reflected in the official description of the company: fixed-income gears drive the operation of the core component, common stock, while Bitcoin returns are products of this "mechanical device." However, very few investors seem to question where these returns actually come from and how they are generated; instead, they blindly celebrate this fictional dynamic.

Preferred stock is a financial asset and is not constrained by physical laws. As an engineer, Saylor uses these fallacious analogies to make Bitcoin returns seem like they stem from some form of financial alchemy, which is not surprising. However, since the company has no actual income and no real banking operations (the company borrows but does not lend), Bitcoin returns ultimately derive solely from the Ponzi elements mentioned earlier in the company's business model: attracting retail investors through a carefully crafted narrative, causing them to bid up the price of common stock, thereby enabling the opportunity for Bitcoin returns. As for the Bitcoin returns sourced from various debt instruments, they cannot currently be considered fully realized, as the debt ultimately needs to be repaid. Only the Bitcoin returns generated through common stock ATM issuance are immediate and final—this is the true profit.

####Bitcoin Vault Company's Bubble

Regardless of whether they realize that narratives cannot always influence reality, the concept of Bitcoin gains from Strategy has rapidly spread among the management teams of many small companies worldwide. CEOs of various companies have witnessed insiders from Strategy amassing huge wealth by continuously selling stocks to retail investors, prompting them to start imitating this model. The continuous selling behavior of insiders from Strategy can be verified by examining 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 all of this will eventually come to an end, as many companies find themselves in trouble or even failing due to their traditional core businesses, turning instead to bold Bitcoin treasury strategies. These companies will be among the first to have to sell their Bitcoin assets to repay creditors when the situation deteriorates. Michael Saylor himself has admitted that he was in a state of despair before discovering Bitcoin.

• Metaplanet previously operated under the name Red Planet Japan and struggled to achieve profitability in the budget hotel sector in Japan.
• Before Méliuz SA desperately turned to a Bitcoin acquisition strategy, it underwent a 100:1 reverse stock split.
• Vanadi Coffee SA operates five cafes and a bakery in the Alicante region of Spain, on the brink of bankruptcy, but its pivot to a Bitcoin strategy seems to have miraculously boosted its stock price.
• The notorious meme stock company Trump Media & Technology has no revenue to speak of and is now seeking billions in funding to create a Bitcoin vault company to save its stock price, which is at an all-time low.
• Bluebird Mining Ventures Ltd is also in despair – at least from the perspective of its stock price – and recently decided to sell all the gold it has mined to fund its purchase of Bitcoin as a treasury asset; as of the writing of this article, its stock price has risen nearly 500% in a month.
• H100 Group, a small and until recently struggling Swedish biotechnology company, as of the writing of this article, has seen its investors receive about 1,500% returns within a month, due to Blockstream CEO Adam Back providing funding for the company through some form of convertible bond to support its Bitcoin treasury strategy.

There are many such examples, but I think it has already illustrated the issue: it is not Microsoft, Apple, or NVIDIA that have become Bitcoin treasury companies, but rather those companies on the brink of failure with no way out. Jesse Myers, a supporter of Strategy and a direct influencer of Michael Saylor's Bitcoin valuation model, once admitted:

"[…] MicroStrategy, Metaplanet, and Gamestop are all zombie companies. They need to seriously examine themselves and acknowledge that we cannot continue down the original strategic path. We must completely rethink how to create value for shareholders."

These troubled companies have turned their attention to Michael Saylor and his strategy, believing they have found a clear path to wealth. By mimicking this so-called financial alchemy, they are now caught up in a massive transfer of wealth, while the Bitcoin vault company bubble is nearing its end.

####When the puzzle shatters

Although Strike, Strife, and Stride are part of this impressive company's puzzle, they take precedence over equity. The same goes for convertible bonds, where not all bonds are currently "profitable." Future free cash flow must always first meet the demands of these instrument holders before the remainder can be allocated to common stockholders. This is obviously not an issue in good economic times, as the company's debt ratio is relatively low; but in bad economic times, the value of company assets can plummet while debt obligations remain – looming like a towering threat over any new creditors. Due to a phenomenon known as "Debt Overhang," any new creditors may hesitate to lend for the purpose of repaying other debt obligations. The initially intoxicating narrative and exaggeration may ultimately backfire on its creators.

The situation has worsened due to the prolonged duration of the Bitcoin bear market. At that time, many struggling Bitcoin treasury companies will further exert selling pressure on assets. In other words, the more popular the Strategy becomes, the deeper the potential future Bitcoin crash will be, which could completely destroy the equity value of most companies that adhere to this strategy until the very last moment.

Summary: Michael Saylor likes Bitcoin. Like us, he prefers to have more Bitcoin rather than less. Therefore, to think that he would let the company's management pass up an opportunity that is essentially defined as arbitrage is extremely naive.

When the trading price of common stock is higher than the net asset value, companies can create risk-free profits for existing shareholders by transferring wealth to buyers of newly issued shares. This behavior will continue to manifest in a larger scale of common stock ATM issuances, along with some new, obscure "innovative products," even though there may be protests or dissatisfaction from the outside regarding equity dilution.

The evidence for this viewpoint lies in the fact that my prediction from this March has already been validated: less than a month and a half later, the company announced a new ATM issuance valued at $21 billion. If Strategy does not take advantage of this arbitrage opportunity, then all imitators will rush to capture this opportunity, increasing their Bitcoin reserves in the same risk-free manner. In this frenzy of arbitrage opportunity expansion competition, the company will incur debt in various forms, and the potential risks will consequently increase.

In the next round of the Bitcoin bear market, the stock price of Strategy will drop to - and eventually fall below - the net asset value per share, causing significant Bitcoin-denominated losses for investors who buy stocks at a premium today. The best course of action for investors in Strategy today is to emulate the actions of the company and its insiders: sell the stock!

Bitcoin is no longer the main strategy of this company, nor of the emerging Bitcoin vault companies; you are.