MSTR Vs. STRC Vs. BTC – One Of These Three Is 'Going To Lose Badly' In The Next 4 Months, Says Arca CIO

• Arca CIO Jeff Dorman said this is the first time holders of MSTR, Bitcoin, and Strategy’s preferred securities are directly competing for the same economic value.
• According to Dorman, the company’s financing model was never properly tested against a prolonged period of flat or declining Bitcoin prices.
• Hesaid Strategy’s use of $1.38 billion in cash to repurchase convertible debt that carried no ongoing interest expense was "baffling."

Shares of Michael Saylor-backed Strategy (MSTR) traded flat alongside a stagnated Bitcoin (BTC) on Friday. According to the chief investment officer at digital asset manager Arca, between MSTR, BTC and the Variable Rate Series A Perpetual "Stretch" Preferred Stock (STRC) and Bitcoin (BTC), one is going to see a significant drop in the next four months.

“This is the first time that MSTR, BTC and Pref holders are really in bind,” he wrote. “Someone is going to lose badly here, and it will happen in the next 4 months.”

MSTR’s stock jumped 6.5% in afternoon trade, with retail sentiment on Stocktwits trending improving to ‘bearish’ from ‘extremely bearish’ territory over the past day. Bitcoin’s price rose over 1% the last 24 hours, climbing past $74,000, and saw a similar improvement in retail sentiment to ‘bearish’ from ‘extremely bearish’ territory over the past day. 

Arca CIO Warns Of A Coming Collision

At the center of Dorman’s concerns is Strategy’s increasingly complex capital structure. The company has built a sizable stack of preferred securities tied to its Bitcoin strategy. 

According to Dorman, Strategy now carries roughly $15.5 billion in perpetual preferred stock, including its flagship STRC series, which currently pays an annualized dividend rate of about 11.5%. That translates into roughly $1.5 billion in annual dividend obligations.

Strategy’s legacy software business generates relatively modest cash flow, which is why the company has relied heavily on capital markets activity to fund both its Bitcoin purchases and its growing dividend commitments.

Dorman stated that the structure was largely built around the assumption that Bitcoin would continue rising, allowing Strategy to access fresh capital and potentially monetize portions of its Bitcoin holdings at higher prices. According to him, that assumption is now being tested and results will show over the next four months. 

The Math Behind Strategy’s Obligations

Dorman noted that Strategy previously raised roughly $2 billion through stock sales, creating what he described as a sufficient cash buffer to cover around two years of dividend payments.

However, he called the company’s decision to later deploy a substantial portion of that reserve to repurchase debt “baffling.” Strategy spent approximately $1.38 billion to retire $1.5 billion face value of its zero-coupon Convertible Senior Notes due in 2029, buying the debt back at an 8% discount earlier this week and paused its Bitcoin buying for the week.

Moreover, the transaction reduced the company’s cash reserve to roughly $871 million. By Dorman’s calculations, Strategy’s preferred-share commitments now exceed $1.7 billion annually and less than $900 million remaining in reserve. He estimated that the company may have only a limited runway if access to capital markets becomes more challenging.

Dorman's stated is that this structure was never stress-tested against a flat or falling Bitcoin price. According to him, the model was built on the assumption that Bitcoin would rise sharply enough to support it. Dorman called a bet that BTC was "about to moon" and that future obligations could be funded through BTC sales at elevated prices. 

Is Michael Saylor Selling Bitcoin?

Adding to the debate, Strategy reportedly transferred 411.48 Bitcoin, worth approximately $30.3 million, to Coinbase Prime on Friday morning. The transaction fueled speculation among retail traders on Stocktwits that the company could be preparing to sell a portion of its Bitcoin holdings.

MSTR's stock has gained 4.5% this year, while Bitcoin's price has fallen over 15%. 

Read also: Bitcoin Rises While Trump Weighs Iran Deal, But The Bigger Question Is Whether It’s Becoming Digital Gold

For updates and corrections, email newsroom[at]stocktwits[dot]com