Bitcoin (BTC) holder Strategy’s (MSTR) capital trap is getting tighter, according to Ilan Solot, senior global markets strategist, at Marex Solutions, a division of global financial services firm Marex.
The company is sitting on a massive bitcoin hoard, accumulated through aggressive buying and stock dilution. Common shareholders bought Saylor’s vision, making the company a leveraged bet on BTC. But that narrative is colliding with reality.
“Strategy is now a fight over the capital waterfall; every move protects one stakeholder by torching another,” he said in an email to CoinDesk.
Indeed, different groups, including BTC holders, are competing for capital, and they sit in a hierarchy. In a crisis, debt gets paid first. Then preferred shareholders. Then common. Then whatever’s left, mainly BTC holders. Right now, Strategy needs capital. But every option available destroys someone.
Sell bitcoin? That hurts the core narrative and common shareholders who believed in it. Issue more stock? That dilutes current equity holders. Skip the preferred dividend? That torches yield tourists. Issue more debt? Everyone below that debt in the waterfall moves further from safety.
“The whole dance here is about who gets stuck with the loss,” Solot said.
The company could keep issuing debt. But there’s a limit. Eventually, lenders stop lending. Then the hard choice comes: hurt common shareholders or hurt preferred shareholders or sell the bitcoin. There’s no option that doesn’t hurt someone.
“Issue more debt and everyone below gets pushed further down the waterfall,” he said.