Bitcoin (BTC) holder Strategy’s (MSTR) capital trap is tightening, according to Ilan Solot, senior global market strategist at Marex Solutions, a division of global financial services firm Marex.
The company is sitting on a massive bitcoin hoard, accumulated through aggressive purchases and stock dilution. Common shareholders bought into Saylor’s vision, making the company a leveraged bet on BTC. But that narrative collides with reality.
“Strategy is now a battle for capital’s waterfalls; each move protects one stakeholder by burning another,” he said in an email to CoinDesk.
In fact, different groups, including BTC holders, compete for capital and they sit in a hierarchy. In a crisis, debts are paid first. Then preferred shareholders. So common. So what is left, mainly BTC holders. Right now, Strategy needs capital. But every available option destroys someone.
Sell bitcoin? It hurts the core narrative and common shareholders who believed in it. Send out more inventory? It dilutes current stockholders. Skip the preferred dividend? The torches give tourists. Issuing more debt? Everyone below that debt in the waterfall moves further from safety.
“The whole dance here is about who’s stuck with the loss,” Solot said.
The company could continue to issue debt. But there is a limit. Eventually, lenders stop lending. Then comes the hard choice: hurt common shareholders or hurt preferred shareholders or sell bitcoin. There is no option that doesn’t hurt someone.
“Issue more debt and everyone below is pushed further down the waterfall,” he said.
