u/Uncaffeinated

Matt Levine wrote about Strategy in his newsletter today. I'm curious how long they can keep up the preferred stock thing.

Bitcoin leverage

The story of banking is that it is a magic trick for transmuting risky assets into safe liabilities. A bank lends money to companies and homeowners, which is risky (they might not pay back the money). The bank gets the money by issuing deposits, which are safe. A $1 deposit at a bank should always be worth $1. There are various problems with this magic trick; those problems are the main theme of this column, and of financial history generally. But the magic trick exists for a reason: This transmutation increases society’s capacity to take productive risks. There are only so many people who want to make risky investments. Lots of people would rather keep their money safe in the bank. If the bank uses that money to make risky investments, then everyone is happy: The people who want their money safe in the bank feel safe, but the risky investments that create economic growth still get made. Again, there are problems!

Bitcoin is, let’s assume, a risky asset. Some people want to buy Bitcoin, because they want that risk: They think Bitcoin will go up, they want to own it when it goes up, and in exchange they are willing to take the risk that it might go down. Other people do not want to buy Bitcoin, because they do not want that risk. They want to keep their money safe in the bank. [6]

In general, when people want to own Bitcoin, it goes up, and when people don't want to own Bitcoin — they just want to keep their money safe in the bank or whatever — it goes down. But the story of banking is perhaps instructive here. You might think: “If people put their money somewhere safe, like a bank deposit, and then the bank invested the money in Bitcoin, that would make everyone happy. The people with money would feel safe, but also Bitcoin would go up. The magic transmutation of banking increases society’s capacity to take risk on Bitcoin. There will be more productive investment in Bitcoin, because of this magic.”

Is that stupid? I mean. For the most part, banks do not actually do this; banks are more or less not allowed to fund Bitcoin investments with deposits. But crypto has, over the years, created all sorts of “shadow banks” to do some form of this trade: They take money from depositors, promise the depositors their money back whenever they want it with interest, and then use the money to make speculative crypto investments. Do these shadow banks prop up the price of Bitcoin and other cryptocurrencies? Some people think so. When the shadow banks collapse — as they sometimes do! — does that drive down the price of Bitcoin and other crypto? Yes, absolutely.

Here is a fascinating article from Bloomberg’s Olga Kharif:

Bitcoin is trading just over $77,000, down almost 30% from a year ago. What appears to be largely preventing a steeper fall — and what has been doing so for much of this year — is a single company operating on a scale that has no precedent in the asset’s history. Strategy Inc., the company run by Michael Saylor, has acquired 171,238 Bitcoin year-to-date, according to its public filings. That exceeds the roughly 62,000 Bitcoin produced by the entire global mining network over the same period — and appears to represent the majority of net corporate and ETF-related accumulation in 2026, according to Mark Palmer, an analyst at Benchmark-StoneX, who covers the company. …

Strategy funds its Bitcoin purchases through a perpetual preferred stock called STRC, which pays investors an 11.5% annual cash dividend. In the weeks before each month’s record date — set around the 15th — investors accumulate the shares, driving the price back up toward its $100 face value. That recovery allows Strategy to sell new shares into the market and direct the proceeds straight into spot Bitcoin. When the cutoff passes and the shares drift lower, the buying slows. It picks up again the following month. STRC traded at around $99.28 on Wednesday. …

“Although traditional Bitcoin demand indicators, including spot BTC ETF inflows, Bitcoin futures open interest and even stablecoin inflows have yet to meaningfully accelerate into 2026, Strategy continues to accumulate Bitcoin at roughly the same pace as a year ago, when it purchases nearly $12 billion,” said Markus Thielen, chief executive officer of 10x Research. “This suggests that the current wave of demand is being driven less by organic market participation and more by financial engineering, as Strategy increasingly relies on yield-generating capital market products to fund its Bitcoin acquisition strategy.”

Strategy’s most recent update says that it sold about $1.95 billion of Stretch in a week to buy Bitcoin. We talked about Stretch last year, and it is an odd instrument. It is a perpetual preferred stock of Strategy, but it has a floating coupon rate (currently about 11.5%) that is designed to keep it at par: The rate is reset each month to try to keep Stretch’s trading price at $100 per share. “For the issuer,” I wrote, that “is essentially very short-term financing”: Strategy’s interest cost on Stretch resets every month to reflect its current financing cost. Not exactly — it’s preferred stock, and Strategy has flexibility to pay less than the market-required interest rate — but that’s the idea.

Essentially Strategy is issuing dollar-denominated one-month financing (at 11.5%!) designed to always pay back par, and using that financing to buy a big chunk of all the Bitcoins that are for sale. So that’s neat!

Mox Stormchaser

Matt Levine on Strategy