Strategy tests STRK ATM program with first Bitcoin purchase

Strategy (formerly known as MicroStrategy) has made its first Bitcoin purchase using its recently announced STRK preferred stock at-the-market (ATM) program. The company sold 123,000 STRK preferred shares, raising approximately $10.7 million, which was promptly used to purchase Bitcoin at around $82,900 per Bitcoin.

This marks a significant strategic shift as Strategy moves beyond its traditional common stock ATM offerings to leverage its 8% Series A Perpetual Strike Preferred Stock program, potentially providing a more efficient capital raising mechanism for Bitcoin acquisition.

First STRK ATM test reveals acquisition strategy evolution

The recent purchase appears to be a test run of Strategy’s $21 billion STRK ATM program, which was announced earlier this year. By selling 123,000 STRK preferred shares at approximately $87 per share, Strategy raised $10.7 million that was immediately deployed to purchase Bitcoin.

This approach differs significantly from the company’s previous capital raising methods and may indicate a strategic evolution in how Strategy plans to fund its Bitcoin acquisition strategy going forward. Rather than diluting common shareholders immediately, the STRK program creates potential future dilution that only occurs if Strategy’s stock price exceeds $1,000 per share.

Strategy’s Bitcoin holdings currently stand at 538.200 BTC with an average acquisition cost of USD 67,766 per Bitcoin. This latest purchase demonstrates the company’s commitment to continuing its Bitcoin accumulation despite market volatility.

The mathematics of accretive STRK Bitcoin acquisition

The STRK preferred stock program offers a unique financial structure that potentially creates significant value for Strategy’s shareholders. When analyzing the recent transaction:

1. Strategy sold STRK shares at approximately $87 per share
2. These shares yield an 8% annual dividend
3. They convert to common stock when Strategy’s share price reaches above $1,000
4. The current price-to-NAV ratio for this transaction calculates to approximately 3.46x

What makes this approach potentially accretive is that approximately 71% of the funds raised represent a premium over the underlying Bitcoin value per share. In effect, Strategy is selling “$1 worth of Bitcoin exposure” for $3.50, using the premium to acquire additional Bitcoin.

The estimated Bitcoin gain from this transaction alone is approximately $7.6 million. If Strategy were to maintain a similar pace weekly, this could theoretically generate around $395 million in annual Bitcoin gains, which at a 15x earnings multiple could add nearly $6 billion to Strategy’s market capitalization.

Strategic implications of the STRK ATM program

The initial $10.7 million raise appears modest compared to the full $21 billion authorization for the STRK ATM program. At this pace, it would take approximately 37 years to exhaust the full program - suggesting that Strategy is likely to accelerate its use of this facility once the initial test proves successful.

This move represents the third pillar in Strategy’s capital raising strategy, complementing:

1. Common stock ATM offerings
2. Convertible debt issuances
3. STRK preferred stock (hybrid instrument)

By diversifying its capital raising mechanisms, Strategy can optimize its funding sources based on market conditions, potentially reducing its reliance on common stock issuances that create immediate dilution for shareholders.

Volatility as a strategic asset

One often overlooked aspect of Strategy’s approach is how it leverages volatility as a strategic asset. The company’s unpredictable purchasing patterns help maintain elevated stock volatility, which enhances the value of its convertible securities and STRK preferred shares.

Higher implied volatility increases the value of the embedded options in these securities, potentially allowing Strategy to raise capital on more favorable terms. This approach creates a virtuous cycle:

1. Unpredictable purchases maintain high stock volatility
2. High volatility increases convertible security values
3. More favorable funding terms enable more Bitcoin acquisition
4. Increased Bitcoin holdings drive further stock appreciation

Strategy’s stock currently trades at a premium of 1.840x to its Bitcoin net asset value, reflecting the market’s confidence in this approach to Bitcoin accumulation.

Market reaction and future outlook

Despite the positive implications of this strategy evolution, market reactions have been mixed. Some retail investors appear disappointed with the modest size of the initial purchase, perhaps hoping for larger Bitcoin acquisitions during recent price dips.

However, this measured approach aligns with Strategy’s long-term vision rather than short-term market timing. The company continues to focus on steadily increasing its Bitcoin per share, which currently stands at 0.00200135 BTC per basic share and 0.00178004 BTC per diluted share.

With unrealized gains of +USD 13.684 bln on its Bitcoin holdings and a Bitcoin yield year-to-date of +10.97%, Strategy remains focused on its long-term Bitcoin accumulation strategy rather than attempting to time market bottoms.

Conclusion

The activation of Strategy’s STRK ATM program represents an important evolution in the company’s Bitcoin acquisition strategy. By leveraging preferred shares with delayed dilution characteristics, Strategy may have found a more efficient mechanism to continue building its Bitcoin treasury.

With 538.200 Bitcoin already on its balance sheet valued at USD 50.156 bln, Strategy has established itself as the leading corporate Bitcoin holder. The successful test of the STRK ATM program suggests that the company now has another powerful tool to extend this lead.

As Strategy continues to innovate in corporate Bitcoin acquisition, investors will be watching closely to see how aggressively the company deploys its $21 billion STRK ATM authorization in the coming months. If this initial test is any indication, Strategy appears poised to continue its Bitcoin accumulation strategy with a new, potentially more efficient funding mechanism.

Credits for this aricle go to: Beat The Denominator