A Wall Street veteran is sounding the alarm on Strategy Inc., warning that the company's aggressive Bitcoin financing model has reached a breaking point and that someone is about to get hurt.
A Wall Street veteran is sounding the alarm on Strategy Inc., warning that the company's aggressive Bitcoin financing model has reached a breaking point and that someone is about to get hurt.
Jeff Dorman, chief investment officer of digital asset manager Arca, published a detailed breakdown on X on Thursday arguing that Strategy's capital structure has "gotten so out of hand" that a major loss for one group of stakeholders is now inevitable within four months.
Related: Michael Saylor moves $30 million in Bitcoin
Strategy, formerly known as MicroStrategy, has accumulated roughly $15 billion in preferred stock that carries approximately $1.5 billion in annual dividend obligations.
Dorman's argument is that this structure was built on a single assumption, that Bitcoin would keep rising, allowing the company to fund those dividends through future Bitcoin sales.
That bet has not paid off. Bitcoin has been under pressure, currently trading close to $73,400, and Strategy's cash position has shrunk significantly.
The company recently raised $2 billion through stock issuance, which Dorman called a "smart move", enough to cover roughly two years of dividend payments. But instead of holding that cash as a buffer, Strategy used $1.38 billion of it to repurchase its own zero-coupon convertible notes due in 2029, buying them back at an 8% discount.
That reduced the 2029 bond stack from around $8.2 billion to $6.7 billion but left the company with only about $871 million in cash, a figure Strategy's own filings confirm.
"This is a baffling decision for a company with cash flow problems," Dorman wrote. "Why pay off 0% coupon debt with the only cash you have?"
Dorman sees only a few paths forward.
Strategy could sell Bitcoin to fund dividends but doing so during a Bitcoin downturn would pressure both BTC's price and MSTR's stock simultaneously. It could issue more preferred stock, dilute common shareholders further, or pay dividends in shares rather than cash.
Michael Saylor has publicly ruled out new convertible notes, which would have been the most logical way to extend the runway. That leaves the options narrower.
"The only bull case," Dorman wrote, "is that underestimating Saylor's capital markets chicanery has been a losing proposition for years. Maybe there was a plan?"
His conclusion was blunt:
"This is the first time that MSTR, BTC and Pref holders are really in a bind. Someone is going to lose badly here, and it will happen in the next 4 months."
Related: Billionaire hedge fund manager dumps MicroStrategy stock entirely
