Strategy’s $1 Billion Bitcoin Buy: The Big Risks Behind Michael Saylor’s Crypto-Hoarding Plan

Strategy (MSTR), a bitcoin-linked company, made a large, new purchase of the world’s largest cryptocurrency, making its stock an even higher-leverage way to play bitcoin. The company formerly known as MicroStrategy scooped up 13,927 bitcoins between April 6 and April 12, paying an average price of $71,902 per coin.

With the purchase, Strategy’s total holdings come to 780,897 bitcoins, at an average cost of $75,577. The company paid about $59 billion for the trove of crypto coins, as part of its bid to build a digital asset treasury, which stockpiles cryptocurrencies instead of traditional assets.

The latest purchase reinforces Strategy’s position as the world’s largest corporate bitcoin holder. It owns about 3.7% of bitcoin’s total issuance. However, much of that total issuance has been lost forever – as much as 20% by some estimates – making Strategy’s stake of actual coins higher.

Despite the massive ups and downs in bitcoin’s price over the past six months or so, Strategy is sticking to its approach. Over the past 52 weeks, bitcoin peaked at more than $126,000 per coin, while it’s been as cheap as about $60,000 in early February, although very briefly.

As a leveraged play on bitcoin, Strategy stock has been more volatile than the coin itself. Its net asset value is volatile, given Strategy’s high levels of debt and bond-like preferred stock. In the past 52 weeks, the stock ranged from $104 to $457 and now sits at the lower end of this range.

For those who think bitcoin may be ready to bounce back from its lows, Strategy stock may be an intriguing play. But its value is built on a ton of risk that investors should fully understand.

Strategy’s High-Risk Play on Bitcoin, Explained

Strategy’s game plan is to use leverage – that is, debt financing – to buy bitcoins, so that when bitcoin prices rise, Strategy’s net asset value and stock will rise even faster. It’s classic financial engineering, and it can work well when bitcoin is rising and investors’ “animal spirits” are high.

While Strategy does have an operating business, it’s a non-factor in generating cash flow here.

Because of this setup, investors often pay more than Strategy’s net asset value. In other words, they might pay 150% of the net value, when they could buy bitcoin or one of the best bitcoin exchange-traded funds (“ETFs”) and pay just 100% of net asset value. That sounds strange, but there is a rationale behind it.

And that gets to the genius – and madness – of Strategy’s approach. Investors are willing to pay more than Strategy’s net asset value precisely because it has so much leverage. That is, Strategy’s stock can move faster than bitcoin, so investors are awarding it a higher multiple.

That mispricing is one key to how Strategy’s Executive Chair Michael Saylor keeps the game rolling. When investors pay a sufficiently large premium to net asset value, Saylor can issue more common stock and then immediately buy more bitcoin – without diluting the value.

In fact, the approach here creates more of what many investors want: exposure to bitcoin.

When Strategy’s common stock does not trade at a sufficient premium, Saylor can turn to a series of four preferred stocks and debt to fund its Bitcoin purchases.

That’s what Strategy did in its most recent purchases in early April. Strategy sold just over 10 million shares of its Variable Rate Series A Perpetual Stretch Preferred Stock (STRC). This series of preferreds pays a variable rate, with an initial rate of 9%. Pricey financing, for sure.

The preferred sales raised about $1 billion, which Strategy plowed straight into acquiring more bitcoin.

Strategy has set up its financing so that it can issue preferreds and even common stock whenever it thinks pricing is attractive. This at-the-money (“ATM”) offering program lets the company respond quickly to favorable pricing, whether on its own stocks or bitcoin.

For example, it now has the ability to issue about $57 billion in its own securities. If those funds were used to buy more bitcoins, it would basically double the company’s stake at current pricing.

Strategy is staying on top of the authorizations it needs for issuing stock before it actually needs the funds, helping to ensure that it has money when the company needs it.

Strategy announced in March that it has created new authorizations to issue $21 billion of STRC preferred stock and $21 billion in common stock. These amounts are included in the total above.

Again, this financing means that Strategy’s net asset value rises even faster than bitcoin itself. Unfortunately, it also means that the company’s net value falls even faster when bitcoin drops.

Incredibly, traders have even higher-risk, higher-reward ways to play a bitcoin rebound.

Here’s How Strategy’s Finances Could Spiral Out of Control

All this financing creates a risky situation for Strategy, making the company less resilient to several potential risks: a decline in bitcoin’s price, the inability to issue more securities, or just general financial hardship, to name a few.

When investors were willing to pay a higher premium for Strategy’s common stock – perhaps 160% when the bitcoin bulls were running – it made sense for the company to issue a lot of common stock. Now with the stock at the lower end of its recent trading range at a premium of just 115% of net asset value, this bitcoin-stock arbitrage is much less advantageous.

So, management has stated that it intends to rely more on preferred stock to fund its buys. We’ve seen that switch a lot already this year. As noted above, this approach helps juice the returns on the common stock and reduces selling pressure on it as well.

But it comes at a cost: Strategy must pay those preferred dividends if it wants to keep issuing preferred stock. In contrast, it doesn’t need to pay anything on outstanding common stock.

Here’s the issue: Strategy hasn’t generated an operating cash flow in the past two full years, and barely any in 2023. So, Strategy needs cash to pay those preferred dividends and other interest.

As of year-end 2025, it was sitting on about $2.3 billion in cash that it was stockpiling. That gives it some cushion to weather hard times. Saylor has previously stated that the company’s war chest gives it about two and a half years of reserves to pay for dividends and interest.

But every issuance of preferreds increases the cash drain even more. And the financial markets may not always be receptive to Saylor’s financial engineering.

As I explained in a recent article:

But if the capital markets are not receptive then, Bitcoin remains down, and Strategy still needs the cash, it may face some hard choices.

Those choices could include even selling some Bitcoin, a move that could ultimately cause an unwinding of Strategy’s positions. The market may “squeeze” a company that’s in trouble.

So, it’s important that Strategy carefully manages its financing today.

Investors should carefully watch how Strategy uses the cash it raises. If it begins to issue preferreds to pay dividends on existing preferreds rather than buy bitcoin, its finances could deteriorate quickly. Even the slim premium on Strategy’s net asset value could disappear.

It wouldn’t be a pretty picture for bitcoin traders, either. If Strategy is forced to liquidate coins, it could put serious pressure on the relatively thin bitcoin market, producing even more volatility. And as soon as the market sniffs out desperation, the knives will come out for Strategy.

With the risks here, Strategy is likely to be one of the market’s most exciting stores in the coming years.

Regards,

James Royal

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