Summary I maintain a strong buy rating for MSTR, projecting a 20X increase in market cap over the next decade due to its evolving role as Bitcoin’s investment bank. Strategy’s issuance of preferred shares (STRK and STRF) strengthens my thesis that it channels BTC through its capital structure, creating BTC-backed securities. MSTR benefits from BTC volatility by monetizing it, increasing BTC per share, and generating a BTC Yield, despite potential risks in a bear market. The company’s strong brand creates the potential for sustainable cash flows, mitigating dividend payment concerns. Dividends obligations on preferred shares are risks. They get very bad if BTC has a long bear market. Time to review developments since I last wrote about Strategy ( MSTR ) . I am still issuing a strong buy rating because my core thesis of Strategy being Bitcoin’s only investment bank is, in my view, only strengthening. I estimate that such an entity would be worth multiple trillions of dollars in market cap, meaning that today’s $80 billion market cap has a 20X in store over the next decade. Here are the updates since early January 2025: Strategy has opened a $21 billion ATM for STRK , the perpetual preferred stock that is convertible to 1/10 share of MSTR common with an 8% dividend on $100 liquidation preference. Strategy has announced Strife (STRF) , a perpetual preferred stock paying 10% on $100 liquidation preference. Strategy has issued $2 billion in 0-coupon convertible bonds due 2030 . This has a lower conversion price than the last one. Strategy tapped the STRK ATM to acquire 130 BTC sometime between 9–15 March. Each of these developments strengthen my core thesis that Strategy has effectively become Bitcoin’s investment bank by channeling BTC through its capital structure to create de facto BTC-backed securities which give investors exposure to BTC in a less volatile and more palatable form. This is the role of an investment bank: to sit in the middle of capital markets underwriting various securities for its clients. In Strategy’s case, the client is the Bitcoin network since almost every dollar raised by Strategy goes directly into buying more BTC and the issued securities only have value to the extent that BTC continues to generate excess returns and volatility. Many people see this as a very dangerous leveraged bet on BTC which will end horribly. While this view makes sense, and there is, in fact, a scenario for this to happen, people are often mistaken in thinking that Strategy can somehow get a margin called if BTC falls in value. A margin call cannot happen because all its debts are unsecured, non-callable, and multi-year durations. The only way Strategy can be “liquidated” is if BTC goes through an unprecedented multi-year bear market (over 3 years or more) which kills all BTC-related investment appetite from the capital markets. This could put Strategy in a position where they must sell BTC at bear market prices to pay back the debt and service dividends on liquidation preference on preferred stock. If this ever happens, then MSTR shareholders will be left with close to 0 equity value. As long as you remember that this is a possible scenario, you can accurately assess your risk tolerance towards MSTR as an investment. With that out of the way, I will now discuss the impact of the developments listed above. There are two big bullish factors and one emerging risk I see. More Capital Preferred stock is the gateway to a lot more capital. Below is a breakdown of global asset classes by total value. Preferred stock, as bond-like instruments, sit in the $300 trillion square that says “Bonds.” STRK and STRF serve a much larger category of investors and investment capital than MSTR common. Global Assets (Strategy) Within this $300 trillion square, some want fixed income with possible upside, which is serviced by STRK, since this is convertible preferred stock. Others want a fixed income without such upside, which can be serviced by STRF: a strict income stream and nothing else. Other investors in the $300 trillion “Bonds” square are interested in volatility arbitrage, which is serviced by convertible bonds. The main point is that as Strategy unveils more offerings with different covenant structures, it will gradually grow its TAM to the whole $300 trillion bond market. To put this into perspective, a mere 1% of this market is roughly twice the market capitalization of BTC and around the entire market capitalization of all crypto assets. And of course, if $3 trillion did enter BTC, it would add a lot more than $3 trillion to the BTC market cap, since price is determined at the margin. More Optionality For MSTR Implied Volatility Generation This next point is very underappreciated, even amongst MSTR and BTC bulls. One of the persistent headwinds of MSTR valuation is the so-called NAV Premium. Many people do not understand why MSTR trades at a sizable premium to its BTC holdings. The simple answer is that MSTR has persistently increased its BTC per share over time. But it takes a lot of financial background knowledge on derivatives markets to understand how this is done and why it is quite sustainable. I have covered this very topic in previous articles like: MicroStrategy: Recent Numbers And Basic Math Show The Tremendous Value In This Company MicroStrategy Could Be A Multi-Trillion Dollar Company The bottom line is that MSTR monetizes the volatility of its own equity and then sweeps its proceeds into BTC. Unlike BTC, which does not benefit from its own volatility, MSTR can benefit from the volatility of BTC. MSTR also dynamically boosts its own volatility over that of BTC’s volatility by borrowing money to buy BTC, thereby gaining leveraged exposure to BTC. This volatility can then be sold in the form of embedded options like STRK and convertible bonds. The proceeds of these volatility sales are then swept into BTC to increase BTC per MSTR share. Strategy calls this generating a “BTC Yield.” In short, MSTR is an operation that creates, packages, and exports BTC volatility to the capital markets and then generates a BTC Yield for shareholders using the proceeds from these sales. Buyers of volatility use it to generate profits via dynamic delta hedging. This is also called gamma scalping, or volatility arbitrage. If volatility is the product, then MSTR IV is really an index of its BTC Yield potential. What is MSTR’s IV composed of? Two things: BTC’s volatility The volatility of the NAV premium multiple If the NAV premium multiple is always 1X (0 volatility), then MSTR would simply move with BTC. This would cause the IV to shrink from the current ~100 IV to BTC’s current ~60 IV. This would be a significant decrease in BTC Yield potential. The problem right now is that MSTR has not fully convinced the market that it should trade meaningfully higher than 1X NAV. After the rally in November 2024, the multiple to NAV has collapsed from over 3X to just over 1.5X. The introduction of the STRK ATM program gives Strategy the option to do ad-hoc buybacks on MSTR, which will have the effect of defending a floor NAV multiple, effectively injecting volatility into the NAV premium multiple and creating more volatility for the common stock. While it is unlikely that Strategy will take this course of action in the near term, it is nevertheless in the toolbox as a way to fix future IV lulls. If the market knows that the preferred stock ATM may be used at any time to boost the NAV premium, then the 1X NAV argument significantly weakens. The uncertainty of how and when Strategy might do buybacks will also add more natural volatility to MSTR. Also, if the STRK ATM is used to push the NAV premium above a floor multiple, the MSTR ATM can be used to push the NAV premium below a ceiling multiple. This allows Strategy to inject volatility into MSTR common while realizing a guaranteed spread from selling MSTR for high while buying it for low (note that high/low prices will technically be in BTC terms because we are talking about multiples of Strategy’s BTC NAV). I think of the STRK ATM as a very convenient line of credit which the company can tap for its own purposes. The Risk That Is Forming “Mo’ money, mo’ problems” – The Notorious B.I.G. More money provides more opportunities. But, as Biggie Smalls has aptly stated, more money can also mean more problems. As Strategy expands to service other corners of the capital markets, the risk is that it gets ahead of itself and obtains too many liabilities to service. The current view of how dividend obligations on STRK will be serviced is that the MSTR ATM can be used to raise the funds. This logic also applies to STRF. There are two issue with this: When the MSTR ATM is used to pay dividends rather than buy BTC, it will generate a negative BTC Yield since share count would have increased but total BTC would not have increased. The cost of capital for dividends at the current STRK price of $84 per share is 9.5% (dividend is $8 per STRK share, since it is 8% on the $100 liquidation preference). This is like borrowing money at 9.5% to buy BTC up front, and then never paying back the loan and keeping the 9.5% annual interest forever. While this is okay if BTC (the thing you spent the money on) increases by more than 9.5% each year, it is very problematic in a bear market. Using the MSTR ATM in a bear market will mean selling shares at lower NAV premiums and lower prices to pay a fixed dollar obligation. Strategy would have to sell a lot more shares just to meet the obligated dividends. The other possibility is to use the STRK ATM (since STRK would not be as exposed to BTC downturns) to pay STRK dividends. But this method will increase the dividend obligation for future years. While this can be used to “wait out” a bear market, it is only compounding problems as time goes on. A more sustainable option might be to issue convertible bonds with lower conversion premiums so that the coupons are negative. This creates fixed positive financing cash flows which can be used to offset the negative financing cash flows from dividends. The bottom line is that no matter how you look at it, the fact that the company does not have cash flows to survive a bear market without selling a bunch of shares or racking up a lot more debt at bad terms is potentially problematic when it has the ability to issue $21 billion in preferred stock at a 9.5% cost of capital. This could very well end up being a case of more money causing more problems, especially if that money is used to buy at the top before a multi-year bear market. Why I Think MSTR Is A Strong Buy Now, the first and main reason I rate MSTR a Strong Buy is because I do not think a multi-year bear market in BTC is going to happen. I am very bullish on BTC, at least until early 2026 and with a base case price target of around $175,000 for the cycle top. I think the bottom of the following bear market could be around $50,000, which would put MSTR in almost zero existential danger. However, everyone needs to make their own estimates of this important risk factor. My second reason is that I believe Strategy will move to create a profitable business unit, which would nullify the concerns that preferred stock dividend payments require annual common stock dilution to service. I have long stated that perhaps the second-biggest asset of MicroStrategy and Michael Saylor is the brand name. MSTR is the most successful and high-profile crypto company ever. When we look at the titans in crypto, we have Binance, Coinbase, and Tether. Only Coinbase ( COIN ) is publicly traded, but its stock has never even broken-even from its IPO. MicroStrategy, now Strategy, is iconic for reasons like this chart below, which is now updated live on the strategy.com website . Returns Since MSTR Adopted BTC Strategy (Aug 2020) ( strategy.com ) When Saylor uses this impressive brand name to create crypto and Bitcoin-aligned products, I have little doubt that the reception will be quite positive and the returns quite good. Strategy is basically sitting on a gigantic reservoir of intangible assets (reputation, brand, credibility, attention, followership) which it has not yet monetized because it has been so focused on acquiring BTC and issuing various tranches of securities. Easy example. Let’s say Strategy creates an ETF product with capped BTC upside and downside. Something simple like a 50% IEF, 25% TLT, and 25% IBIT can do the trick. The company already raises billions of dollars at a time, so marketing a Bitcoin-related ETF done through a turnkey ETF provider will be a lot more straightforward than if someone brand new stepped into this space. Strategy already has all the relationships and credibility. Saylor has 4.2 million followers on Twitter , many of whom would likely invest in an ETF if he was behind it. Running such an ETF would be a fee business, meaning MSTR shareholders would not be exposed to the price risk BTC in this specific business unit. Strategy would get cash flows from AUM and there is a point where the AUM is big enough to pay off dividends. This is just one example. The point is that Strategy has yet to monetize its brand or its massive, unencumbered BTC holdings. Once it does, the dividends become a much smaller problem. Conclusion I continue to buy more MSTR and BTC. I think the future is bright, even though the risks may be marginally higher than they were before. It all depends on whether BTC will have an unprecedented bear market and on whether Strategy can develop cash flows. The execution of the capital raising plans has gone extremely well and it is evolving into the Bitcoin investment bank which I predicted months ago.
