Strategy: The Bitcoin Premium Is Evaporating

Summary Strategy Incorporated continues its aggressive accumulation of Bitcoin, funded by multiple preferred share ￰0￱ Q3 alone, annual run rate dividends on the preferred shares more than doubled, which will lead to more common share dilution. MSTR's premium to its Bitcoin holdings has compressed, with the stock underperforming Bitcoin and the S&P 500 despite a cryptocurrency ￰1￱ rise of cryptocurrencies in recent years has sparked a new investment ￰2￱ traded companies, especially ones with little to no actual business, have used major capital raises to purchase these coins in large numbers, hoping that their prices would soar over ￰3￱ Inc ( MSTR ) has been the largest name to do this to date, but its ongoing Bitcoin bet has not been paying off lately for its common ￰4￱ coverage of the name It was about three months ago that I last took a look at the situation here, focusing on the rising dividend cost for ￰5￱ management issuing multiple classes of preferred shares to fund its Bitcoin purchases, the dividend payments due to the preferred holders were on the ￰6￱ that time, Strategy shares were trading at a sizable premium to their Bitcoin holdings value, but that situation has changed quite a bit ￰7￱ my previous article, the stock has lost more than 26.6% through Friday's close, compared to a 4.6% gain for the S&P ￰8￱ Q3 specifically, Strategy common shares were down more than 20%, despite a more than 6% rise in ￰9￱ preferred launches, dividend payments jump A few weeks after my article, Strategy launched another class of preferred shares, the Strategy Inc 9.0% SERIES A PERPETUAL STRETCH PREF STK ( STRC ).

This is a variable rate preferred, which started with a 10.00% annual dividend that has since been increased to 10.25%. The initial offering was for more than 28 million shares, which brought in net proceeds of nearly $2.5 ￰10￱ a reminder, there are also the following preferreds: Strategy Inc 8.00% SERIES A PERPETUAL STRIKE PFD ( STRK ), which features an 8% annual ￰11￱ Inc 10.00% SER A PERPETUAL STRIFE PFD STK ( STRF ), which features a 10% annual ￰12￱ Series A Perpetual Stride Preferred Stock ( STRD ), which features a 10% annual ￰13￱ week, the company provided its usual in-depth quarterly summary of its various financial ￰14￱ the now four classes of preferred stock, Strategy has issued over 65 million preferred ￰15￱ these numbers as well as their respective annual dividend rates, the chart below shows how annual run-rate dividend payments have increased since the start of these programs earlier this ￰16￱ numbers are based on the share counts at the end of each respective ￰17￱ Preferred Stock Dividend Payments (Company Filings) At the end of Q3 2025, Strategy was set to pay out about $636 million in annual dividend payments, or about $159 million per ￰18￱ the company has previously detailed , it has used the common stock in the market sales program to raise money for dividend payments.

Thus, shareholders of the common stock are being diluted to pay the preferred holders, and the amount of that dilution is starting to grow quite a bit over ￰19￱ Bitcoin premium dropped in Q3 When you look at the valuation of Strategy, there are two ways to think about ￰20￱ first is the normal way, looking at the market cap of the common stock, but you could also include the total value of the preferreds as ￰21￱ has been trading at a significant premium to its Bitcoin holdings for a while now, but that premium dropped in Q3 as the chart below ￰22￱ this calculation, I have included the ￰23￱ Bitcoin Premium (Author's Calculations) At the end of September, the total value of Strategy's two common share classes and its four preferred share classes was almost $99 ￰24￱ that time, the value of its Bitcoin holdings was about $73 ￰25￱ we subtract out the three preferred classes, the value of the common shares comes down to around $92.5 ￰26￱ ratio for the chart above went from 1.83 to 1.35 during Q3, but if you only use the common, it went from 1.77 to ￰27￱ rest of the business is certainly not worth the remainder of that, given it is showing a small revenue increase currently and is expected to report less than half a billion dollars in software sales this ￰28￱ software companies that show decent growth can go for about 10 times revenue, but those with limited growth or even declining revenues usually go for the low-to-mid-single ￰29￱ means the software business is worth just a couple of billion dollars at most, so investors here are basically paying about 1.3 times the value of the company's Bitcoin ￰30￱ a pure Bitcoin play, buying the iShares Bitcoin Trust ETF ( IBIT ) would seemingly be the better ￰31￱ than hoping Bitcoin prices rise over time, the other main part of the bull case for Strategy common holders has to do with index ￰32￱ positive net income could allow the stock to become a member of the S&P 500 index, which should trigger a sizable amount of institutional ￰33￱ of the premiums that Strategy shares trade at currently could be due to those betting that S&P 500 inclusion will come ￰34￱ of the reason for the decline in Bitcoin premium may have to do with management's guidance update in mid-August.

Previously, the company was only going to issue common shares to purchase Bitcoin if the market value of shares was higher than 2.5 times the value of its holdings (the "mNAV"). As the graphic below shows, management will now issue MSTR shares when it considers the situation to be advantageous, which could mean a lot more potential dilution for common ￰35￱ Updated Guidance (August 18th 8-K Filing) Final thoughts and recommendation I wondered at the end of my previous Strategy article if the premium that shares traded at to their Bitcoin holdings would eventually compress. Well, that certainly happened during Q3, with shares taking a major hit despite a rally in the ￰36￱ the past three months, another preferred share class was issued, and the annual run rate dividend payments more than doubled during Q3 due to that issuance and more sales of preferred ￰37￱ management also changing its guidance about issuing MSTR shares, the Bitcoin premium has been more than ￰38￱ the moment, I continue to rate the common stock as a ￰39￱ you are a long-term believer in Bitcoin, it seems likely that Strategy shares would rise over time, but you might be better off just buying Bitcoin directly or through one of the ETFs like IBIT.

I believe that Strategy is going to continue to sell a lot of shares to purchase more Bitcoin, which likely will provide a headwind to the possible upside ￰40￱ we see Bitcoin prices hold steady or even head higher in the next few quarters, Strategy may be worth a speculative short-term buy then if you believe the S&P 500 committee will add it to the ￰41￱ MSTR get closer to that 1.00 mNAV number, it will be interesting to see what management decides to do moving forward.