Stretch Marks

A Case Study in Financial Engineering

Bitcoin hasn’t been doing well lately. Against the backdrop of rising markets, the world’s preeminent digital currency is down nearly 30% this year, having lost roughly half its value since hitting a peak of $126,000 in October last year.

“If you plot the ten-year chart, it looks like we’re at the bottom of the latest cycle,” says Michael Saylor whose company, Strategy, is the largest corporate owner of Bitcoin. “I think the headwinds are the lingering Gulf War, the switch toward a more tight monetary policy, the hundreds of billions of dollars of capital that have been pulled into the AI trade by the Google deal, the SpaceX deal, all the other deals. Crypto hasn’t been the hot thing – the hot thing is SpaceX or AI.”

Saylor was in London this week along with a coterie of other crypto kingpins (it wouldn’t have anything to do with Wimbledon, would it?) One headwind he didn’t mention, though, was his own market impact. Strategy owns 847,363 Bitcoin, equivalent to 4% of the total supply, and close to 6% of the number in active circulation. This year alone, the company bought 174,863 Bitcoin for a consideration of $13.7 billion, accounting for roughly 70% of estimated net digital-asset flows year to date, according to estimates from JPMorgan.

Saylor’s purchases have been funded by a credit strategy that may not be sustainable. Last July, the company issued a new security, Stretch, which ranks senior to common equity and pays a variable dividend that management adjusts with the intention of keeping the price at $100 par – or at least that was the plan. Since launch, the company has issued $10.5 billion of Stretch on Nasdaq, where it trades under the ticker STRC alongside $5.0 billion of other Strategy preferred stock.