The world of crypto often feels like a high-stakes chess match, played out on a public stage. Recently, Strategy, a company known for its significant Bitcoin holdings, found itself in a bit of a squall. Its stock dipped, and some retail investors on social media were not shy about voicing their concerns.
- Strategy, holding 636,505 BTC, recently acquired more Bitcoin by issuing and selling stock, drawing criticism for its capital-raising strategy.
- Benchmark analysts argue that MSTR’s stock underperformance is due to premium compression and market choppiness, not mismanagement, and view the company as a clean way to gain Bitcoin exposure.
- Strategy’s potential S&P 500 inclusion faces scrutiny due to its Bitcoin holdings, as the index committee may view unrealized gains from Bitcoin mark-to-market accounting as too volatile for sustainable performance.
They pointed fingers at executive chairman Michael Saylor, suggesting the company mishandled its capital-raising strategy. But, as often happens in this space, what seems clear on the surface can have deeper currents. I’ve seen this play out many times.
Strategy’s Bold Bitcoin Play
Strategy, trading as MSTR, has made no secret of its mission: accumulate Bitcoin. Just recently, the company added another 4,048 Bitcoin to its treasury. This brings its total holdings to a staggering 636,505 BTC, a number that certainly turns heads.
How did they fund this latest acquisition? By issuing and selling more of their Class A common stock, MSTR, along with some perpetual preferred stocks. It’s a familiar playbook for Strategy, but this time, it drew some sharp criticism.
The company had, in July, set a specific rule for itself. It would only use its common-stock ATM (an “at-the-market” offering, meaning shares are sold directly into the market) to buy Bitcoin when its market-to-net-asset-value, or mNAV, was at least 2.5 times. This was meant to keep them from selling equity when the stock traded too close to its underlying Bitcoin value.
However, the market had other ideas. Over the next few weeks, Strategy’s mNAV slid, eventually hitting 1.59 times. The market, ever quick to react, started to guess that this meant slower Bitcoin buys. This guess squeezed the premium on MSTR shares even further, causing the stock to lag behind the spot price of Bitcoin itself.
Benchmark analysts, led by Mark Palmer, stepped in to offer a different view. They argued that the retail investor “griping” got the story backwards. The pressure on MSTR’s share price, they said, came from this shrinking market premium and a generally choppy market for both traditional assets and crypto.
Palmer put it plainly: “premium compression begetting more compression” was the real reason MSTR underperformed. It was a chain reaction, not a mismanagement of funds.
The company’s decision to relax that 2.5x mNAV constraint? Benchmark called it a “rational course-correction.” It gave Strategy back its flexibility, consistent with how they’d operated before. Ultimately, it helped them continue accumulating Bitcoin, which is their core strategy.
For those looking to gain exposure to Bitcoin without diving into the mining business, Benchmark sees MSTR as a solid option. They call it “the cleanest and most liquid way to own the upside in bitcoin without taking mining-execution risk.” It’s a strong endorsement, suggesting a clear path for investors.
The S&P 500 Question Mark
Beyond the daily trading, there’s another intriguing possibility for Strategy. Its stock has become a hot topic as a potential candidate for inclusion in the S&P 500 index. The announcement for the September rebalance is expected this coming Friday, and many eyes are on MSTR.
The firm meets all the standard criteria for S&P 500 inclusion. This is no small feat. But, and it’s a big “but” in this case, its substantial Bitcoin holdings could be a sticking point for the index committee. It’s a unique situation, one that tests the traditional boundaries of what an S&P 500 company looks like.
We’ve seen other crypto-linked companies, like Coinbase and Block, recently added to the S&P 500. So, the committee has already shown some willingness to include firms with ties to the digital asset space. The question now is whether they want “additional crypto-linked representation” at this stage.
Palmer highlighted a key difference for Strategy. While MSTR does meet the S&P 500’s requirement for positive earnings, the source of those earnings is often unrealized gains from Bitcoin mark-to-market accounting. This means the value of their Bitcoin goes up on paper, rather than from recurring operating profit from, say, selling software.
The committee might view these earnings as too volatile. They might not see them as reflective of sustainable corporate performance, which is a big deal for an index like the S&P 500. It’s a different kind of business model, and traditional finance committees tend to be cautious.
Despite these potential hurdles, Benchmark maintained its “buy” rating for MSTR. They set a price target of $705. On the day this news broke, MSTR shares traded higher by nearly 3%, reaching $341. It seems the market, at least for now, is listening to Benchmark’s take.
So, as we watch for Friday’s S&P 500 announcement, it’s worth considering the delicate balance Strategy walks. It’s a company deeply tied to Bitcoin’s fortunes, navigating market sentiment and traditional finance rules. What will the index committee decide, and how will that shape the perception of crypto-adjacent companies in the wider investment world?