A proposal from the research division of MicroStrategy suggests the company should sell at least $3 billion worth of Bitcoin to meet cash payment obligations over the next two years, in an attempt to restore market confidence in its capital structure.
However, this strategy is complicated by an internal contradiction: the same research head also predicts that the dividend rate on MicroStrategy's Series A Convertible Preferred Stock will increase by 50 basis points.
This projected increase would add approximately $100 million to the company's annual dividend expenses over two years, a move that could potentially undermine market confidence instead of bolstering it.
Currently, MicroStrategy's annual preferred stock dividend payments total around $1.2 billion, with the majority linked to its Series A Convertible Preferred Stock.
As the world's largest publicly traded corporate holder of Bitcoin, the company currently possesses 847,363 bitcoins.
According to its most recent filing with the U.S. Securities and Exchange Commission, the firm acquired 520 bitcoins between June 15 and 21 for $34.9 million.
Concurrently, MicroStrategy increased its dollar reserves by $300 million, bringing the total to $1.4 billion.
This boost in cash reserves has shortened the company's projected ability to cover dividend payments from an estimated seven years down to approximately 14 months.
Data indicates that by 2026, MicroStrategy's cash reserves have already decreased by 38%.
Based on this trend, blockchain analytics firm CryptoQuant has recommended the company halt its Bitcoin purchases and prioritize replenishing its cash reserves.
CryptoQuant also noted that MicroStrategy is under no obligation to sell Bitcoin to support the price of its Series A Convertible Preferred Stock.
An alternative option for the company would be to increase the existing 11.5% dividend yield.
Bitcoin proponent Samson Mow highlighted that the Series A Convertible Preferred Stock features a "self-correcting mechanism."
This mechanism is triggered if the stock price falls below its $100 reference price, at which point MicroStrategy would cease issuing new preferred shares, thereby reducing supply.
A lower price would naturally increase the yield for new buyers, attracting more demand and theoretically pushing the price back toward the $100 level.
Whether this mechanism can function effectively against a backdrop of tightening cash flow remains a key focus for market observers.
This situation represents a critical test for MicroStrategy's capital structure, following a period of significant contraction in its cash reserves.
Comments