On August 24, a caller asked Jim Cramer for his thoughts on maximizing risk at the Bitcoin power law floor by starting a position in Strategy Inc (NASDAQ:MSTR) stock. Mad Money host replied:
Well, first, I’m not in favor of MSTR… Because frankly, they have too much debt. But I will talk about something that did happen. I bumped into one of the Winklevoss twins recently… and they were telling me, well, Cameron, he was saying point blank, “Listen, there’s going to be some good news in crypto, I think. You gotta hold on to it.” And what I said to him was, “You know what? I had second thoughts after I heard what the IBM CEO said.” And said, “You know what, I think it’s going to be longer.” And if it’s going to be longer, I’m going to risk owning it. I did not say that on air. I should have. I should have said, I changed my mind. Why did I change my mind? Because I think that quantum is happening way too late and I’m much less worried than I used to be. I think it’s just too far in the distance and I will adjust and so will Bitcoin.
Strategy’s Financing Adds to the Bear Case
Strategy Inc’s (NASDAQ:MSTR) debt and preferred securities remain the most direct concern for common shareholders. Its Bitcoin strategy is funded through a combination of common equity, preferred securities, convertible debt and other financing arrangements. That structure gives common shareholders leveraged exposure to Bitcoin while leaving Strategy with debt, preferred-stock obligations and ongoing financing needs. As of August 23, the company held 840,447 bitcoin. The company also reported roughly $6.75 billion of debt and approximately $15 billion of preferred stock, with approximately $1.76 billion in expected annual preferred dividend payments and interest expense.
Dilution is another risk. Between August 17 and August 23, the company sold 18.26 million MSTR shares and raised approximately $2.01 billion in net proceeds. During the period, Strategy repurchased about $136.4 million of preferred stock, added $300 million to its existing USD Reserve and established a new $1.59 billion USD Cash pool. The larger liquidity cushion reduces near-term funding pressure, but it does not eliminate the debt, preferred obligations, or dilution risks that concern Cramer.
The other major risk is mNAV, a measure of Strategy Inc’s (NASDAQ:MSTR) market price relative to its net Bitcoin per share after accounting for senior claims and the company’s USD Reserve. The company’s capital-raising model is generally more favorable when MSTR trades at a meaningful premium to the value of its Bitcoin because issuing equity at a higher valuation can provide capital for additional Bitcoin purchases without the same pressure on Bitcoin per share. If that premium contracts, the economics of issuing new shares become less favorable.
