Stock market investors may be overlooking an interesting metric at Strategy (MSTR), the largest publicly traded holder of bitcoin : the capital market measure known as amplification.
Amplification compares the size of the Michael Saylor-led company’s total debt and debt-like instruments, such as preferred shares, to its stock of 766,970 BTC. As leverage increases, like leverage, it adds more risk to the company, making the stock more sensitive to bitcoin price movements.
Investors have tended to focus on the price of bitcoin and the multiple to net asset value (mNAV) premium when valuing the company. But if the gain, currently around 33%, rises, it could become the dominant risk factor.
At the top of Strategy’s capital structure is convertible debt, about $8.25 billion outstanding, the highest requirement. Below are a number of preferred stocks, including STRC, STRK, STRD and STRF, with about $10.3 billion in face value, according to the MSTR dashboard. At the bottom sits common equity, MSTR, which absorbs all remaining upside and downside.
Read more: Strategy signals another bitcoin buy as company only needs 2% annual BTC growth to cover dividend
STRC is designed to become the primary vehicle for bitcoin accumulation for the company. Senior to equity and junior to debt, STRC pays 11.5% annual dividend, paid monthly in cash.
The volume of STRC, once insignificant and in the low single digits relative to MSTR, has increased to around 20% on a weekly basis and occasionally to over 25%. According to the MSTR Dashboard, MSTR traded $1.7 billion on Friday, well below its $2.5 billion 30-day average, while STRC traded $526 million, roughly double the $259 million average, nearly 50% of MSTR’s one-day volume.
Higher STRC activity makes it more difficult to manage consolidation without relying on the issuance of common stock, which can weigh on performance relative to bitcoin. Over the past 30 days, the bitcoin price is relatively flat, while MSTR is down 11%.
At lower gain, MSTR behaves like geared BTC. At higher levels, it gets harder to manage, on top of about $1.12 billion in annual liabilities.
