Michael Saylor, chairman of the largest public Bitcoin treasury company, Strategy (formerly MicroStrategy), is embarking on what could be his most daring financial venture yet: the introduction of perpetual preferred stock as a new funding mechanism.
This new approach seeks to move away from traditional methods like common stock sales and convertible bonds, which have already helped Strategy amass $75 billion in Bitcoin assets.
Saylor’s Bitcoin Credit Model
The perpetual preferred stock, branded “Stretch,” offers a unique financial structure—these securities do not mature and can even defer dividend payments, providing flexibility for the issuer while potentially unsettling investors.
The Stretch offering features variable-rate dividends and lacks voting rights, positioning it as neither conventional debt nor typical equity. Saylor believes this could provide the company with the necessary capital to continue acquiring Bitcoin.
According to Bloomberg, over the next four years, he plans to retire billions in convertible notes, reduce common stock sales, and rely more heavily on preferred offerings as his primary funding source.
This ambitious plan aims to establish a “BTC Credit Model,” where Bitcoin underpins a new stream of income. Saylor envisions the potential to raise “$100 billion… even $200 billion” if demand for these securities is strong.
High-Yield Risks
So far this year, Strategy has raised approximately $6 billion through four perpetual preferred offerings, with the latest $2.5 billion tranche being one of the largest capital raises in the crypto space this year.
As Michael Youngworth from Bank of America noted, this retail-driven approach is unique in the corporate preferred market, which is typically dominated by investment-grade institutions.
However, there are concerns about the sustainability of this model. The perpetual preferreds require ongoing, substantial dividend payments, which could be a challenge given that Bitcoin itself does not generate income.
Saylor’s push for perpetual preferreds is also a strategic response to the limitations of the convertible market, which tends to exclude retail investors.
Strategy’s CEO, Phong Le, has framed this shift as a way to create a more resilient capital structure, particularly in light of the challenges faced during the 2022 “crypto winter.”
Despite the potential advantages, the high yields associated with perpetual preferreds—often between 8% and 10%—could become burdensome, especially in a market downturn, according to experts.
Critics like short-seller Jim Chanos have labeled these instruments as “crazy” for institutions to buy, given their non-cumulative nature and the issuer’s discretion over dividend payments.
When writing, Bitcoin trades at $117,260, retracing over 5% from the recently achieved $124,400 all-time high earlier in the week. Year-to-date, the market’s leading crypto is up 101%.
Featured image from DALL-E, chart from TradingView.com
