Bitcoin Magazine: The Bitcoin reserve company craze is a bubble—best to sell Strategy stock
TechFlow Selected TechFlow Selected
Bitcoin Magazine: The Bitcoin reserve company craze is a bubble—best to sell Strategy stock
Bitcoin is no longer the primary strategy for this company, nor for those ever-emerging Bitcoin vault firms; you are.
Navigating Web3 tides with focused insightsAuthor: Emil Sandstedt
Translation: TechFlow
It has been six months since I first published a report on the company then known as MicroStrategy (now renamed Strategy). Aside from the name change, the company has expanded its range of financial products, further accumulated Bitcoin, and inspired many other companies to emulate Michael Saylor’s strategic model. Today, Bitcoin treasury companies seem to be everywhere.
Now is the time for an update. We will examine whether these Bitcoin treasury companies have operated in line with the predictions laid out in the initial report and once again attempt to summarize where all of this might ultimately lead.
The Warning Bells Are Ringing
Last December, the company appeared nearly invincible: its key performance indicator—Bitcoin yield—was accumulating at an incredible annualized growth rate of over 60%, and optimism was high. Little wonder, then, that most of the carefully articulated arguments in the report released at that time were either mocked, ignored, or met with hostile challenges demanding short positions on the stock. The share price, measured in either USD or BTC, is now roughly flat compared to that time, offering little evidence to support the earlier predictions.
Regrettably, few understood—or even recognized—the most important conclusion of my December report: it concerned the source of Bitcoin yield. We will therefore reiterate the problems with this metric and explain why it should raise red flags for any serious investor.
Bitcoin yield—the increase in Bitcoin per share—is literally being transferred from the pockets of new shareholders to those of existing ones.
Many new investors buy shares hoping to benefit from high Bitcoin yields themselves, but these gains come either directly from new capital raised through record-breaking ATM (“at-the-market”) offerings of Strategy common stock, or indirectly from shares sold short by market-neutral hedge funds holding the company's convertible bonds. This is the Ponzi-like aspect of the company’s operations: publicly boasting of Bitcoin yields far exceeding any traditional returns while concealing the fact that these yields do not stem from sales of goods or services, but rather from the new investors themselves. They are the source of the yield, and their hard-earned money will continue to be harvested as long as they remain willing to fund it. The scale of this extraction is proportional to the level of confusion, which can be measured by the premium of the common stock over the company’s net asset value. This premium is cultivated and maintained through a complex yet compelling corporate narrative, promises, and an ever-expanding suite of financial products.
Because the term “Ponzi” has been frequently weaponized against the Bitcoin space over the past decade, many Bitcoin enthusiasts have grown accustomed—and rightly so—to dismissing such criticisms outright.
But let it be clear: even if a company within the Bitcoin ecosystem intentionally or unintentionally constructs a Ponzi scheme, this does not mean that Bitcoin itself is a Ponzi scheme. The two are separate assets. Ponzi schemes existed in eras when metallic standards were used as currency, yet this does not imply that precious metals themselves were or are Ponzi schemes. When I make this accusation regarding Strategy’s current phase, I do so strictly from a definitional standpoint—not from idle exaggeration.
Accumulation Continues
Before drawing further conclusions, we must revisit the content of the original report and review the decisions made by the company over the past six months.
On December 9 last year, Strategy announced the purchase of approximately 21,550 BTC for about $2.155 billion (an average price of ~$98,783 per BTC). This acquisition was funded through proceeds from the ATM ("at-the-market") issuance under the now-famous "21/21 Plan" launched earlier that year. Just days later, the company purchased over 15,000 additional BTC via ATM issuance, followed by another announcement of acquiring around 5,000 BTC.
By the end of 2024, the company submitted amendments to shareholders proposing to increase the authorized number of Class A common shares from 330 million to 10.33 billion—a 30-fold increase. Simultaneously, the authorized preferred shares rose from 5 million to 1.005 billion—a 200-fold increase. While this does not equate to full issuance, it provides greater flexibility for future financial maneuvers, especially as the "21/21 Plan" rapidly approached exhaustion. By focusing also on preferred shares, the company could explore alternative financing routes. By the end of 2024, Strategy held approximately 446,000 BTC, achieving a Bitcoin yield of 74.3%.
Perpetual Warrant Preferred Shares
At the start of the new year, Strategy filed an 8-K, indicating readiness to seek new funding through preferred shares. This novel financial instrument, as the name suggests, ranks ahead of common stock, meaning preferred shareholders have stronger claims on future cash flows.
The initial fundraising target was set at $2 billion. During the preparation of this new tool, by January 12, the company had accumulated 450,000 BTC. By month-end, the company called for redemption of all its 2027 convertible notes, exchanging them for newly issued shares, as the conversion price had fallen below the market price of the stock. For deeply profitable Strategy convertible bonds, the largest buyers—gamma traders and market-neutral hedge funds—typically choose to convert early and issue new bonds rather than hold until maturity.
On January 25, 2025, the company finally filed the prospectus for Strike Perpetual Preferred Shares ($STRK). A week later, about 7.3 million Strike shares were issued, carrying an 8% cumulative dividend with a $100 liquidation preference per share. In practice, this meant a quarterly dividend of $2 per share would be paid in perpetuity—or cease upon conversion into Strategy shares (when the latter reaches $1,000). The conversion ratio was defined as 10:1—i.e., every 10 Strike shares convertible into one Strategy share. In essence, this instrument resembles a dividend-paying perpetual call option linked to Strategy common stock. If necessary, Strategy may choose to pay dividends in the form of its own common shares. By February 10, proceeds from Strike issuance and common stock ATM offerings were used to acquire approximately 7,600 BTC.
On February 21, Strategy issued $2 billion worth of convertible notes maturing March 1, 2030, with a conversion price of ~$433 per share (~35% conversion premium). This financing enabled rapid acquisition of roughly 20,000 BTC. Shortly after, the company filed a new prospectus allowing up to $21 billion in Strike Perpetual Preferred Shares, suggesting the already ambitious "21/21 Plan" was evolving into something even larger.
The Proliferation of Perpetual Preferreds: Enter Strife and Stride
Following public announcement of the expanded fundraising ambitions, another new instrument emerged: Strife ($STRF), a perpetual preferred share. Similar to Strike, Strife planned issuance of 5 million shares, offering a 10% annual cash dividend—paid quarterly—instead of Strike’s 8% in cash or common stock. Unlike Strike, Strife lacks equity conversion rights, but ranks senior to both common stock and Strike. Any delayed dividends would be compensated with higher future payments, increasing the total annual dividend yield up to 18%. At issuance, the originally planned 5 million shares increased to 8.5 million, raising over $700 million. Combined with ongoing ATM offerings of common stock and Strike shares, Strategy announced in March that its Bitcoin holdings exceeded 500,000 BTC. April saw continued routine ATM activity in common stock until this method neared exhaustion. Strike ATM activities also continued, though due to potentially lower liquidity, raised negligible amounts. With these funds, Strategy surpassed 550,000 BTC in total holdings.
On May 1, Strategy announced plans to launch another $21 billion common stock ATM offering. This statement came immediately after the ATM portion of the original "21/21 Plan" was exhausted, fully validating the logic previously outlined in the report and on X. Since any premium over net asset value creates an arbitrage opportunity for the company, management is inevitably incentivized to keep issuing new shares priced above the underlying Bitcoin asset value to capture that spread. Issuance began almost immediately, enabling further Bitcoin accumulation. As the fixed-income component of the original "21/21 Plan" expanded via new preferred shares, investors now face what amounts to a massive "42/42 Plan"—up to $42 billion in common stock issuance and $42 billion in fixed-income securities. May also saw the company file with the SEC for a new $2.1 billion ATM offering for Strife perpetual preferred shares. By month-end, all three ATM programs were actively "printing" shares to purchase new Bitcoin.
In early June, the company unveiled yet another instrument: Stride ($STRD), a new perpetual preferred asset similar to Strike and Strife, soon to be launched. Stride offers a 10% optional non-cumulative cash dividend, lacks conversion rights, and ranks junior to all other instruments except common stock. An initial issuance of just under 12 million shares, valued at approximately $1 billion, paved the way for adding about 10,000 BTC to the treasury.
The Glittering Puzzle of Bitcoin Treasury Companies
With the introduction of STRK, STRD, and STRF, and the full rollout of Strategy’s "21/21 Plan", the full picture of the past six months should now be clearer.
In the original report, I argued that the primary rationale behind the convertible bonds was not—as claimed by the company—to provide exposure to Bitcoin for market participants who desire it. In reality, bond buyers are almost exclusively market-neutral hedge funds that simultaneously short Strategy stock, thus never gaining actual Bitcoin exposure. It’s simply a charade. The real reason Strategy offers these securities is to create the impression among retail investors of financial innovation within a trillion-dollar industry, while enabling further Bitcoin accumulation without immediate equity dilution. As investors bid up the common stock, the gap between net asset value and market price—and hence the opportunity for risk-free Bitcoin yield—grows proportionally. The greater the economic confusion, amplified by Michael Saylor’s rhetorical skill and vivid analogies, the larger the arbitrage opportunities the company can exploit.
Over the past six months, through the issuance of three distinct types of perpetual preferred shares alongside existing convertibles, these complex financial instruments have reinforced the illusion of innovation, further fueling bidding wars for the common stock.
At the time of writing, the common stock trades at nearly double its net asset value. Given the scale and pace of ATM issuance, this is a remarkable achievement for management. It means Strategy can effectively buy two bitcoins by selling shares equivalent to the price of one.
In 2024, the company benefited from the popular “reflexive flywheel” theory—the idea that the more Bitcoin the company buys, the higher its stock price climbs, creating even more capacity to buy Bitcoin.
By 2025, this self-referential logic evolved slightly into a “torque” narrative, reflected in official company descriptions: the fixed-income gears drive the core mechanism of common stock, and Bitcoin yield is the output of this “machine.” Yet few investors seem to question where these yields actually come from or how they are generated, instead blindly celebrating this fictional dynamic.
Preferred shares are financial instruments unconstrained by physical laws. It’s no surprise, then, that Saylor—an engineer—uses flawed mechanical analogies to make Bitcoin yield appear as if derived from some kind of financial alchemy. But since the company generates no actual revenue and engages in no real banking activity (it borrows but doesn’t lend), Bitcoin yield ultimately stems only from the Ponzi-like element mentioned earlier in the business model: attracting retail investors through精心 crafted narratives, prompting them to bid up the common stock price, thereby enabling the realization of Bitcoin yield opportunities. As for Bitcoin yields derived from various debt instruments, they cannot yet be considered fully realized, because debts must eventually be repaid. Only Bitcoin yields generated through common stock ATM issuance are immediate and final—these represent true profits.
The Bubble of Bitcoin Treasury Companies
Whether or not they realize that narratives cannot indefinitely override reality, the concept of Bitcoin yield has rapidly spread across management teams of numerous small companies worldwide. CEOs have witnessed how insiders at Strategy amassed vast wealth by continuously selling shares to retail investors, and have rushed to copy the model. Strategy insiders’ persistent selling is verifiable through numerous Form 144 filings.
Many companies have successfully implemented this strategy, enriching management and early shareholders at the expense of new investors. But this will eventually end. Many firms—already struggling or failing in their core businesses—are turning to bold Bitcoin treasury strategies and will likely be the first forced to sell Bitcoin assets to repay creditors when conditions deteriorate. Michael Saylor himself once admitted he was in despair before discovering Bitcoin.
-
Metaplanet, formerly operating as Red Planet Japan, struggled to turn a profit in Japan’s budget hotel sector.
-
Prior to Méliuz SA’s desperate pivot to Bitcoin acquisitions, it underwent a 100:1 reverse stock split.
-
Vanadi Coffee SA operates five cafes and a bakery in Alicante, Spain, and was near bankruptcy—but its stock price seemingly miraculously surged after adopting a Bitcoin strategy.
-
The notorious meme stock company Trump Media & Technology has zero revenue and is now seeking billions in funding to establish a Bitcoin treasury in a last-ditch effort to rescue its historically low stock price.
-
Bluebird Mining Ventures Ltd, clearly desperate—at least judging by its stock price—recently decided to sell all its mined gold to fund Bitcoin purchases as treasury assets; at the time of writing, its share price had surged nearly 500% in one month.
-
H100 Group, a small and previously struggling Swedish biotech firm, delivered approximately 1,500% returns to investors within a month—thanks to funding from Blockstream CEO Adam Back via a type of convertible note supporting its Bitcoin treasury strategy.
There are many such examples, but the point is clear: it is not Microsoft, Apple, or Nvidia becoming Bitcoin treasury companies—it is those on the brink of failure, with nothing left to lose. Jesse Myers, a supporter of Strategy and direct influencer of Michael Saylor’s Bitcoin valuation model, candidly admitted:
"[...] MicroStrategy, Metaplanet, and GameStop are all zombie companies. They all need to look in the mirror and admit we can't continue down our previous strategic paths. We must completely rethink how we create value for shareholders."
These distressed firms have turned to Michael Saylor and his Strategy, believing they’ve found a clear path to wealth. By imitating this so-called financial alchemy, they are all now caught in a massive wealth transfer, and the Bitcoin treasury company bubble is nearing its end.
When the Puzzle Breaks
Although Strike, Strife, and Stride are pieces of this impressive corporate puzzle, they all rank senior to equity. So do the convertible bonds—not all of which are currently “in-the-money.” Future free cash flows must always first satisfy these instrument holders before anything is distributed to common shareholders. In good times, this isn’t an issue, given the relatively low debt ratio. But in downturns, company asset values drop sharply while debt obligations remain—looming like a towering threat over any potential new creditor. Due to a phenomenon known as “debt overhang,” new lenders become hesitant to extend credit intended merely to repay other debts. The intoxicating narratives and exaggerations that once fueled growth may ultimately backfire on their creators.
This risk is further exacerbated by prolonged Bitcoin bear markets. Then, many struggling Bitcoin treasury companies will add further downward pressure on asset prices. In other words, the more popular Strategy’s model becomes, the deeper the eventual Bitcoin crash could be—potentially wiping out the equity value of most companies that cling to this strategy until the very end.
Summary: Michael Saylor loves Bitcoin. Like the rest of us, he prefers owning more Bitcoin over less. Therefore, it is extremely naive to believe he would allow company management to abandon an opportunity that is, by definition, pure arbitrage.
Whenever the common stock trades above net asset value, the company can transfer wealth from new shareholders to existing ones, generating risk-free profits. This behavior will persist, taking the form of ever-larger ATM offerings of common stock, accompanied by new, obscure “innovative products,” despite external protests or complaints about equity dilution.
Evidence for this view lies in my prediction from March this year, which was validated in less than six weeks: shortly thereafter, the company announced a new $21 billion ATM offering. If Strategy does not exploit this arbitrage opportunity, its imitators certainly will—racing to similarly boost their own Bitcoin reserves in a risk-free manner. In this frantic race to expand arbitrage opportunities, the company will take on debt in various forms, increasing potential risks.
In the next Bitcoin bear market, Strategy’s share price will fall to—and ultimately below—its net asset value per share, inflicting massive losses, measured in Bitcoin, on today’s premium-paying investors. The best action Strategy investors can take today is to follow the example of the company and its insiders: sell the stock!
Bitcoin is no longer the primary strategy of this company—or of the growing army of Bitcoin treasury firms. You are.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
@BitcoinMagazine
