Expert Warns Strategy’s MSTR, STRC, Bitcoin Holders May Face Huge Losses In 4 Months

In just 4 months, the holders of MSTR, STRC, and BTC could see significant losses, Arca Chief Investment Officer Jeff Dorman warned. His statement comes as concerns grow over the funding model of Michael Saylor’s Strategy and its balance sheet choices.

Dorman Remarks On Future of Strategy’s MSTR, STRC

The situation with the preferred stock issuances and Bitcoin treasury strategy “has gotten so out of hand” Dorman wrote in a lengthy post on X. He thinks Strategy could be financially cornered now.

Dorman says that Strategy could have maintained their mid-course level of investment by cutting back their aggressive capital-raising efforts and buying smaller chunks of Bitcoin. Instead, he claimed the company is bombed dry on preferreds as Executive Chairman Saylor hoped that Bitcoin would spike notably.

“The push into these prefs was based on him clearly thinking $BTC was about to moon,” Dorman wrote. He added that Saylor could have thought that his future Bitcoin profits would make up for the dividend payments for STRC holders.

However, things didn’t turn out that way. Dorman noted that the company has approximately $15 billion in preferred stocks. This stash, he said, has $1.5 billion in annual dividend requirements. He said the slump in Bitcoin has started to give investors reason to worry. Further, it has compelled the Saylor-led company to tighten its cash flow.

For this, he called Strategy’s sale of around $2 billion worth of MSTR stock a “smart move.” It temporarily calmed fears of near-term default and gave close to two years of dividend runway, Dorman noted.

On the contrary, Dorman harshly criticized the subsequent move by the company to utilize part of this cash buffer for repurchasing $1.5 billion in convertible bonds.

“This is a baffling decision for a company with cash flow problems,” he wrote. Dorman questioned, “Why pay off 0% coupon debt with the only cash you have?”

The BTC Sale Narrative In Focus

The only other bull argument that Dorman could think of is that investors continue to undervalue Saylor’s financial engineering skills. However, he said that, at some point, the firm might have to sell Bitcoin in order to keep things afloat.

“That plan may just be selling BTC, which he will have to do eventually,” Dorman wrote. He even warned that such massive BTC sales in a downturn “will crush BTC and MSTR.”

Along similar lines, Strategy actually moved over $30 million in Bitcoin to Coinbase on Friday, May 29. It raised fears of a potential selloff and that Dorman’s warning could come true.

He also floated the idea that Strategy could refinance existing convertibles with longer-dated debt. However, he indicated that Saylor has been publicly distancing himself from issuing more convertibles.

Amid all this, Arca’s CIO issuer a stark warning. “This is the first time that MSTR, BTC and Pref holders are really in bind.  Someone is going to lose badly here, and it will happen in the next 4 months,” Dorman warned.

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