The frenzy of U.S.-listed companies borrowing at low cost to buy Bitcoin may be hitting a wall.
On October 20, Bitcoin treasury company Strive completed a $630 million initial public offering of preferred stock.
According to an 8-K filing Strive submitted to the U.S. SEC, the company issued 7 million shares of SATS preferred stock. The shares were priced at $90 each, with a par value of $100.
Although the offering was oversubscribed by about 25%, the cost of financing was quite steep. The preferred stock carries a stated annual dividend rate of 15%. Because it was issued at a discount, its actual annualized yield on the secondary market is as high as 16.67%, approaching 17%.
According to data from institutional holdings platform BitcoinTreasuries, Strive raised approximately $608 million net of related fees.
Based on Bitcoin’s latest spot price on Binance of about $83,100, the funds could buy roughly 7,300 Bitcoin if fully invested. Strive currently holds about 36,818 Bitcoin. If it bought that amount, its total holdings would surge to 44,000, surpassing Japan’s Metaplanet.
But a recent Bloomberg report points to an unusual signal behind the financing: U.S.-listed Bitcoin treasury companies are facing headwinds in their fundraising model.
What does a 17% yield mean? Compared with the Treasury yields published daily by the U.S. Department of the Treasury, the benchmark yield on one-year Treasuries is currently around 4.2%. Strive’s credit spread is close to 1,300 basis points. In traditional fixed-income markets, a spread this wide is approaching distressed-debt levels, which carry high risk.
The world’s largest corporate Bitcoin holder, Strategy, is also encountering constraints in its capital operations. Strategy previously launched STRC preferred stock with a 12% annual dividend, but suspended fundraising after it fell below its issue price on the secondary market in June.
After its preferred stock offering ran into difficulty, Strategy had to turn to the public market, continually issuing new common shares through at-the-market (ATM) offerings to raise funds for Bitcoin purchases. This directly subjects common shareholders to ongoing equity dilution.
Over the past two years, corporate treasuries have been one of the powerful sources of buying demand driving Bitcoin’s price.
This capital flywheel has relied on extremely low borrowing costs. When Strategy could issue low-interest convertible bonds at rates of 0% to 1%, even modest annual gains in Bitcoin could rapidly expand its balance sheet.
But when new capital demands a fixed return of 15% to 17%, the equation changes completely.
Bitcoin itself generates no cash flow. If borrowing costs reach 17%, its long-term annualized gains would have to consistently outpace double-digit interest expenses. If Bitcoin enters a prolonged period of sideways trading at elevated prices or pulls back, treasury companies without operating cash flow to support them will face pressure as interest steadily erodes their liquidity.
Although Strive’s chief risk officer emphasized that the company currently has no interest-bearing debt due in the near term, a potential annual dividend burden of nearly $100 million will inevitably limit its capacity to take on more leverage going forward.
In its SEC filing, Strive listed the use of proceeds as general corporate purposes, including Bitcoin purchases, working capital, and share buybacks. The company did not commit to investing all the proceeds in Bitcoin. This reflects the management team’s decision to retain flexibility in deploying capital as a safeguard against the hefty dividend payments.
To assess whether the corporate Bitcoin flywheel is truly losing momentum, keep an eye on two specific indicators:
First, watch Strive’s holdings updates and SEC filings over the next month. If less than 80% of the $608 million in net proceeds is actually converted into Bitcoin, it would indicate that under pressure from high interest payments, management has been forced to diversify into other yield-generating assets as a defensive measure.
Second, watch the premium of Strategy’s common stock to its net asset value. If its price-to-book ratio falls below 1.2, the company’s momentum for issuing large amounts of common stock in the public market to buy Bitcoin will also slow significantly.
High-yield preferred stock will not trigger an immediate sell-off, but it sends a clear message: the era of borrowing for free to buy Bitcoin at a frenzied pace has officially come to an end.
This is solely my personal analysis. Please do your own research before investing (DYOR).
$BTC #Bitcoin
On October 20, Bitcoin treasury company Strive completed a $630 million initial public offering of preferred stock.
According to an 8-K filing Strive submitted to the U.S. SEC, the company issued 7 million shares of SATS preferred stock. The shares were priced at $90 each, with a par value of $100.
Although the offering was oversubscribed by about 25%, the cost of financing was quite steep. The preferred stock carries a stated annual dividend rate of 15%. Because it was issued at a discount, its actual annualized yield on the secondary market is as high as 16.67%, approaching 17%.
According to data from institutional holdings platform BitcoinTreasuries, Strive raised approximately $608 million net of related fees.
Based on Bitcoin’s latest spot price on Binance of about $83,100, the funds could buy roughly 7,300 Bitcoin if fully invested. Strive currently holds about 36,818 Bitcoin. If it bought that amount, its total holdings would surge to 44,000, surpassing Japan’s Metaplanet.
But a recent Bloomberg report points to an unusual signal behind the financing: U.S.-listed Bitcoin treasury companies are facing headwinds in their fundraising model.
What does a 17% yield mean? Compared with the Treasury yields published daily by the U.S. Department of the Treasury, the benchmark yield on one-year Treasuries is currently around 4.2%. Strive’s credit spread is close to 1,300 basis points. In traditional fixed-income markets, a spread this wide is approaching distressed-debt levels, which carry high risk.
The world’s largest corporate Bitcoin holder, Strategy, is also encountering constraints in its capital operations. Strategy previously launched STRC preferred stock with a 12% annual dividend, but suspended fundraising after it fell below its issue price on the secondary market in June.
After its preferred stock offering ran into difficulty, Strategy had to turn to the public market, continually issuing new common shares through at-the-market (ATM) offerings to raise funds for Bitcoin purchases. This directly subjects common shareholders to ongoing equity dilution.
Over the past two years, corporate treasuries have been one of the powerful sources of buying demand driving Bitcoin’s price.
This capital flywheel has relied on extremely low borrowing costs. When Strategy could issue low-interest convertible bonds at rates of 0% to 1%, even modest annual gains in Bitcoin could rapidly expand its balance sheet.
But when new capital demands a fixed return of 15% to 17%, the equation changes completely.
Bitcoin itself generates no cash flow. If borrowing costs reach 17%, its long-term annualized gains would have to consistently outpace double-digit interest expenses. If Bitcoin enters a prolonged period of sideways trading at elevated prices or pulls back, treasury companies without operating cash flow to support them will face pressure as interest steadily erodes their liquidity.
Although Strive’s chief risk officer emphasized that the company currently has no interest-bearing debt due in the near term, a potential annual dividend burden of nearly $100 million will inevitably limit its capacity to take on more leverage going forward.
In its SEC filing, Strive listed the use of proceeds as general corporate purposes, including Bitcoin purchases, working capital, and share buybacks. The company did not commit to investing all the proceeds in Bitcoin. This reflects the management team’s decision to retain flexibility in deploying capital as a safeguard against the hefty dividend payments.
To assess whether the corporate Bitcoin flywheel is truly losing momentum, keep an eye on two specific indicators:
First, watch Strive’s holdings updates and SEC filings over the next month. If less than 80% of the $608 million in net proceeds is actually converted into Bitcoin, it would indicate that under pressure from high interest payments, management has been forced to diversify into other yield-generating assets as a defensive measure.
Second, watch the premium of Strategy’s common stock to its net asset value. If its price-to-book ratio falls below 1.2, the company’s momentum for issuing large amounts of common stock in the public market to buy Bitcoin will also slow significantly.
High-yield preferred stock will not trigger an immediate sell-off, but it sends a clear message: the era of borrowing for free to buy Bitcoin at a frenzied pace has officially come to an end.
This is solely my personal analysis. Please do your own research before investing (DYOR).
$BTC #Bitcoin