MicroStrategy’s recent decision to sell a massive amount of stock to buy more Bitcoin has raised eyebrows among investors. The timing and scale of the stock sale have sparked concerns about shareholder dilution and the company’s overall financial strategy.
A Sudden Shift in Strategy
Reports show MicroStrategy dramatically changed its public statements on August 18th. Within days, they issued a huge amount of new stock. Analyst JA Maartunn highlighted the pattern:
- August 3rd: ~$0 in new stock issued
- August 10th: ~$18 million
- August 17th: ~$51 million
- After August 18th: Nearly $360 million in a single week!
This massive increase in new capital has led to intense scrutiny. Many worry MicroStrategy is relying too heavily on selling stock to fuel its Bitcoin purchases.
The New Rules of the Game
The new rules link stock sales to something called market net asset value (mNAV). This compares the company’s share price to the value of its Bitcoin holdings. Here’s the breakdown:
- Stock price > 4x mNAV: Sell lots of shares to buy more Bitcoin.
- Stock price between 2.5x and 4x mNAV: Sell some shares, but more cautiously.
- Stock price < 2.5x mNAV: Primarily use share sales to pay down debt or issue dividends, not buy Bitcoin.
- Stock price < 1x mNAV: Potentially borrow money to buy back stock.
This new policy directly contradicts an earlier promise not to sell shares for Bitcoin below 2.5x mNAV. This reversal is a major point of contention for critics.
How MicroStrategy Funded its Bitcoin Purchase
MicroStrategy’s SEC filing reveals that nearly $310 million came from selling common stock at an average price of $354 per share. An additional ~$47 million came from preferred stock sales. In total, they raised over $357 million, which was used to buy 3,081 Bitcoin.
This purchase brought their total Bitcoin holdings to 632,457 BTC – approximately 3% of the circulating supply. Their stated goal remains 1 million Bitcoin, meaning they’re about 60% of the way there.
Dilution Concerns and Debt Capacity
Investors are rightfully worried about dilution. Each new share dilutes the existing Bitcoin holdings per share. Issuing shares when the stock trades at low multiples of mNAV further reduces the Bitcoin backing per share for existing shareholders.
MicroStrategy’s debt is reportedly around 20% of its Bitcoin NAV, with room to go up to 30%. While they have borrowing capacity, choosing to issue equity at low mNAVs weakens the economics for existing shareholders.