Please note that VanEck has positions in Bitcoin, MSTR, STRK, and STRF.

Four key takeaways:

• MSTR Stock is a Leveraged Bitcoin (BTC) Proxy: MSTR’s stock behaves like a call option on Bitcoin due to its recursive strategy of issuing equity and debt to acquire more BTC as its price rises. This structure provides asymmetric upside and high sensitivity to BTC movements, making MSTR a popular alternative to holding Bitcoin directly.
• MSTR Trades at a Significant Premium to Net Asset Value (NAV): We calculate a +112% premium to the combined fair value of MSTR’s BTC and core software business, driven by expectations of future BTC accumulation, regulatory advantages, and speculative positioning.
• MSTR’s Premium is a meta-stable “Crypto Reactor” the powers MSTR: The Premium fuels its MSTR’s equity value through a recursive loop where volatility and Bitcoin exposure attract investor capital, enabling further BTC accumulation that amplifies the Premium.
• Convertible Securities Add Optionality but Heighten Risk: Strategy’s convertibles and preferreds (especially STRK and STRF) offer different levels of yield and BTC exposure, but come with complexity, downside asymmetry, and sensitivity to volatility. The 3/15/2030 convert has the most MSTR exposure, but even these instruments are heavily tied to BTC and the persistence of the Premium.

• What is Strategy?
• Sources of MSTR’s Equity “Premium”
• Funding the Bitcoin Treasury Strategy
• Evaluating Strategy’s Financing Sustainability
• MSTR’s Capital Strategy and Bitcoin Yield
• Assessing Strategy’s Convertible Bonds
• STRK Overview and Analysis
• STRF Overview and Analysis
• Conclusion on Strategy’s Capital Stack
• Recommendations for Bitcoin Treasury Strategy Firms
• Key Risks to Strategy’s Bitcoin-Financing Model

Strategy (MSTR) accounts for nearly one-third of the pure-play equity-to-crypto market capitalization and represents 10% of the Market Vector Global Digital Assets Equity Index (MVDAPP) Index. As a result, the decision to include it in a portfolio is a key consideration for investment managers aiming to convert the digital asset transformation into alpha.

There is ongoing debate around the merits of exposure to MSTR versus Bitcoin (BTC) or even leveraged BTC, driven by the complexities of Strategy’s capital structure. This calculus is further complicated by Strategy’s issuance of convertible bonds and equity instruments, including high-yielding convertible preferred shares (STRK) and even higher-yielding non-convertible preferred shares (STRF).

In this note, we assess the structure and evaluate the benefits and drawbacks of taking positions within Strategy’s equity or debt stack. We find MSTR common stock to be the superior investment decision compared to the other options offered by Strategy. We assert this view based on the following reasons:

1. Greatest exposure to BTC
2. Simplicity of investment strategy
3. Strongest risk/return profile

What is Strategy?

Strategy (formerly MicroStrategy) is a provider of enterprise analytics software that pioneered the concept of a corporate “Bitcoin Treasury.” In August 2020, Strategy calculated that the significant cash reserves on its balance sheet were vulnerable to inflation in the then-low-interest rate environment. Strategy’s opening move of its Bitcoin Treasury Strategy was to employ $250M of its balance sheet’s cash to buy 21,454 BTC .

In December 2020, Strategy issued $650M in convertible notes and committed its purpose to buying BTC through financial alchemy. Thereafter, Strategy transformed itself into a levered Bitcoin financial vehicle rather than a straightforward enterprise software business. Using leverage and issuing various forms of equity, Strategy has grown to hold 2.7% of Bitcoin’s total supply, corresponding to $61B at the time of writing.

Strategy’s stated aim is to maximize the price of MSTR by increasing the BTC “backing” of each common share. By issuing debt or equity, Strategy accretes the amount of BTC per share and terms this dynamic as “Bitcoin Yield.” Leverage and additional equity issuance are added opportunistically when investor appetite is high during periods of Bitcoin price appreciation. As a result, Strategy’s BTC exposure and leverage are recursive in nature because it is expected to grow over time. As BTC appreciates, the value of Strategy’s BTC stack appreciates so it can re-lever itself by issuing debt to buy more BTC. On the equity side, bull markets in BTC drive favorable capital markets for MSTR common stock, which enables the Strategy to sell equity for additional Bitcoin. The result is that MSTR stock offers accelerating exposure to BTC that advances in tandem with BTC price appreciation. Therefore, the price dynamics of MSTR somewhat resemble a call option on BTC.

Understanding the Sources of MSTR’s Equity “Premium”

MSTR’s common equity currently trades at a premium (“The Premium”) to the combined value of its BTC NAV and Strategy’s underlying software business. At the time of writing, MSTR common equity trades at (+ 112% ) to the fair value of its cache of underlying assets (BTC Holdings + Core Business). Mathematically, we define this as:

Source: VanEck Research as of 3/25/2025

Many debate the causes of MSTR’s Premium, but we believe it is driven by four components:

1. Expectations of Strategy’s future BTC holdings
2. Limited investor options for BTC exposure
3. Leverage to BTC and the advantages of Strategy’s leverage
4. Speculation

The first component of MSTR’s Premium is market expectations around Strategy’s future Bitcoin holdings. The expected future value of Strategy’s Bitcoin holdings can be estimated using three key factors: the “terminal” number of Bitcoins held, the projected future price of Bitcoin, and the discount rate applied to those holdings. A significant portion of the Premium on MSTR stock comes from market recognition that the company will likely continue purchasing more Bitcoin over time. A positive Premium suggests that each BTC will also grow in value and therefore reflects the discounted future price of BTC.

The second component, which can be described as a "regulatory premium," stems from structural limitations in the investment landscape. Many institutional and individual investors are restricted from directly purchasing Bitcoin due to regulatory constraints, investment mandates, distribution bottlenecks, or the lack of secure custody solutions. Since many investors cannot access capital-efficient, leveraged exposure to Bitcoin, they invest in MSTR. Numerous jurisdictions treat Bitcoin unfavorably for tax treatment and capital holding requirements, which causes investors to favor a publicly traded equity vehicle like MSTR. Because it is a common stock, MSTR also offers financial advantages as a collateral asset. These investor limitations render MSTR an attractive proxy for Bitcoin exposure, particularly for investors otherwise excluded from the asset class.

The third component of MSTR’s Premium is the market's recognition of Michael Saylor’s ability to use financial leverage in ways that most investors cannot. Saylor has demonstrated the capacity to raise large amounts of capital at low interest rates, and his corporate structure provides resilience during Bitcoin market drawdowns. Unlike typical margin traders, who are often forced to liquidate in downturns, Saylor can sustain losses and maintain long-term positions. During parts of 2022 and 2023, even as Strategy’s equity deficit reached hundreds of millions of dollars, MSTR's market capitalization remained in the billions, reflecting investor confidence in the long-term leverage structure offered by Strategy.

MSTR’s unique dynamics turbocharge its 30-day historical volatility to an astronomical ~ 113% compared to BTC’s at ~55% . In summary, MSTR equity gives investors convenient access to a levered BTC vehicle that trades on public equity venues. The Premium contributes the bulk of the volatility and performance of MSTR’s stock. We find these figures by deconstructing the weights, correlations, and volatilities in the portfolio that is MSTR (BTC + Business + Premium). The total contribution to returns is 96.5%, while its volatility contribution is around 87.5% .

 

We use QQQ (Invesco’s NASDAQ-100 ETF) as a proxy for tech sector exposure, particularly large-cap software and cloud companies, to represent the characteristics of MSTR’s core business.

Source: VanEck Research as of 3/26/2025. Past performance is no guarantee of future results. The information, valuation scenarios, and price targets in this blog are not intended as financial advice or any call to action, a recommendation to buy or sell, or as a projection of how bitcoin will perform in the future. Actual future performance of bitcoin is unknown, and may differ significantly from the hypothetical results depicted here. There may be risks or other factors not accounted for in the scenarios presented that may impede the performance. These are solely the results of a simulation based on our research and are for illustrative purposes only. Please conduct your own research and draw your own conclusions.

The fourth component of MSTR’s Premium stems from speculative trading dynamics tied to MSTR’s volatility and capital structure. Since the Premium contributes heavily to MSTR’s returns and volatility, any disruption in the core drivers of the Premium would be very detrimental to MSTR’s share price. This is because Saylor harvests MSTR volatility to fund purchases of BTC. As we expand upon below, Saylor’s preferred method of financing BTC purchases is, in order, preferred equity, convertible preferred equity, convertible debt, and common equity. This order is based on the “BTC Gains” afforded to common shareholders, which are driven by the BTC attributable to each common share. Selling preferred equity, for example, adds share dilution, and the proceeds are cycled directly into BTC gains for common shareholders.

These securities that Strategy markets are popular with investors because MSTR’s high volatility translates into numerous trading opportunities across Strategy’s capital stack and options on MSTR. In fact, Strategy is able to maintain low interest costs on its convertible debt because MSTR’s volatility makes the convertible debt’s option component very valuable. Arguably, Strategy prices this option value cheaply to appeal to relative value trading entities. These sophisticated arbitrageurs make relative value volatility trades between the various slivers of Strategy’s securities.

The result is a circular relationship between Strategy’s Premium and its ability to finance more BTC purchases. The Premium provides the bulk of MSTR’s volatility. However, the Premium is largely a function of the ability of Strategy to finance BTC buys. The market is only willing to buy Strategy’s securities because its capital stack is volatile, and Strategy arguably sells this volatility cheaply. On the 1Q2025 earnings call, Saylor calls this reinforcing dynamic a “crypto reactor that can run for a long, long period of time.”

The Premium shows a clear positive relationship with the price of Bitcoin. Over the past year, it has maintained a correlation of 0.52 to BTC ( T-Stat = 9 ) and an approximate beta of 1.77 to BTC. This indicates that as Bitcoin’s price increases, the Premium tends to expand, further enhancing MSTR’s stock performance. The link between BTC price, speculation, financing ability, and MSTR’s valuation forms a self-reinforcing cycle that is central to the company’s strategy.

Correlation of MSTR’s Premium to Bitcoin (BTC) Price

Source: VanEck Research as of 3/26/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Funding the Bitcoin Treasury Strategy

In October 2024, Strategy announced the ambitious 21/21 capital plan to buy BTC with $42B raised by selling $21B of MSTR equity and $21B of fixed income securities by 2027. In the original plan, Strategy would sell $5B of equity in 2025, $7B in 2026, and $9B in 2027. Meanwhile, it would sell fixed income securities at a similar pace of $5B , $7B, and $9B in 2025, 2026, and 2027. These debt issuances targeted a leverage ratio between 20-30%. Strategy leader Michael Saylor calls this “intelligent leverage,” not for speculation, but to strategically acquire a “dominant digital asset.”

Thanks to an unprecedented crypto bull market following the start of the 21/21 plan, By May 2025, it sold all $21B worth of MSTR stock offered in its At-The-Market (ATM) program. In his fixed-income bucket, Saylor has sold $5B in convertible notes, $875M in STRK convertible preferred stock, and $850M in non-convertible preferred stock. During Strategy’s earnings call on May 1, 2025, the firm announced it would be expanding the financing program to $84B, including a new $21B MSTR ATM program, the existing $21B STRK ATM, and an additional $14B in new convertible debt offerings.

42/42 Capital Raising Plan - 32% Complete

Source: Strategy as of 5/7/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

With BTC trading at ~ $95k and Strategy’s holding at 555,450 BTC , we calculate Saylor’s leverage ratio ((Debt + Pref)/(Market Cap)) to be 9% . This figure represents the lowest leverage ratio that the Strategy has undertaken since 2020. Given Saylor’s lower-than-average leverage ratio and his stated desire for debt that is “convertible, unsecured and non-recourse,” it is reasonable to expect more capital will be raised through convertible debt in the very near future.

Funding BTC Purchases by Harvesting Volatility

Source: Strategy 2025 as of 3/25/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

MSTR stock is highly volatile because it is leveraged to BTC, and that leverage is likely to increase as Strategy finances more BTC purchases. Most investors view taking additional leverage to purchase volatile assets like BTC unfavorably and would, therefore, demand a high interest rate. Strategy addresses this by issuing convertible bonds and convertible preferred stock, which derive much of their value from the embedded option features within these securities.

Sophisticated investors prefer these issuances because they allow them to engage in activities like convertible stock arbitrage. In this risky and complex trading strategy, experienced investors buy convertible bonds against shorting MSTR stock and/or MSTR options to profit from differences in realized volatility, implied volatility, and other components of option pricing models.

This trading dynamic helps Strategy solve the cash flow issues by ensuring lower interest payments on its debt. Because there is great demand for highly volatile convertible securities, Strategy can promise investors very low future interest rate payments. A complex dance occurs between Strategy’s capital markets strategy and the market appetite of potential investors.

Source: Strategy as of 5/05/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

1. Net proceeds are presented net of sales commission.
2. The 2024 Common ATM has been substantially depleted and the sales agreement for this program has been terminated by its terms.

This involves Strategy pricing the implied volatility, setting a strike price, and adding a redemption price to maximize the tradability of each issuance. For example, a somewhat near-the-market redemption price allows Strategy to place a ceiling on the upside on the option component of its bond. The result is that the derivative behaves more like a “capped call,” which can exhibit a lower delta than vanilla call options. Choosing strike prices far out of the money on the converts can also lower the value of the option component and thus the delta. Lowering the delta means reducing the number of shares of MSTR stock (or options) needed to hedge the option within the convert. Many convertible arbitrage players favor lower delta issuances because these are less capital-intensive for trading balance sheets.

Evaluating Strategy’s Financing Sustainability

While Strategy’s core business generates some operational income, its BTC purchases using financing will bring significant cash demands. Based on Strategy’s documents and statements, we project total debt to reach $13B by the end of 2025 (up from ~ $8B in April 2025) and $19B by the end of 2026. We also expect preferred equity to grow to $7.5B in 2025 and $15.5B in 2026.

By year-end 2025, we forecast annual interest payments to reach $48M and rise to $87M by 2026. Meanwhile, preferred stock (STRK) dividend payments are expected to rise from $217M in 2025 to $904M in 2026. We estimate these figures based on anticipated market demands for MSTR’s debt coupon and preferred dividend figures. While Strategy retains the option to pay STRK preference dividends in common shares, doing so would dilute existing MSTR holders by reducing BTC per share.

With a projected revenue of $475M in 2025, Strategy depends on financing to cover its fixed income obligations. Of course, the ability to raise new capital is contingent upon the price of Bitcoin. If Bitcoin’s price continues on an upward trajectory, securing new capital will prove easy. Between August 2024 and May 2025, Strategy grew its holdings from 226,000 BTC to 555,450 BTC by obtaining $28.7B in financing. On the other hand, during a crypto downturn between June 2022 and December 2022, Strategy was only able to raise $49M and $11M from equity and debt sales, respectively. With increased cash outlays materializing due to new fixed income securities offerings, a bear market could prove challenging for Strategy.

MSTR is a convexity bet on BTC price

Investing in MSTR is somewhat akin to investing in call options on BTC due to MSTR’s leveraged sensitivity (or ‘torque’) to BTC price movements. However, it is actually much more similar to trying to dynamically replicate a call option on BTC by adding leveraged exposure as the price increases. Strategy’s gambit is to increase its BTC position as financing becomes available, and this typically occurs when the price of BTC is on an upswing. The risk of this strategy is not just prices dropping, but also the contraction of the Premium based upon the collapse of financing BTC purchases. Additionally, this strategy deploys capital at arguably inopportune times, i.e., when BTC reaches highs.

Net Gains from ‘Naïve’ Buying Beat Strategy's Buys

Source: VanEck Research, Strategy as of 3/26/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Strategy’s local top buys accrue “losses” compared to other strategies because they skew higher the average price of Strategy’s BTC buys than if BTC is bought randomly. Whether or not Strategy buying is the reason for the local “highs and lows” is another question. Regardless, this buying strategy at local tops comes at the expense of shareholders as compared to a naïve, randomly implemented BTC buying strategy. However, the flip side is that MSTR provides recursive upside to BTC price because of its “positive convexity,” where BTC price changes cause increasingly higher dollar value of BTC per share, and new financing causes the amount of BTC held per share to also increase. Thus, an investor is exposed to an increasing BTC position as the price of BTC increases.

Replicating Saylor’s strategy as an individual investor without a corporate “wrapper” for the strategy is nearly impossible. While an investor buying BTC futures can see their margin balance grow as BTC rises, enabling more BTC buying, they cannot hold that leverage "patiently" during downturns in price. Futures contracts are marked to market daily, meaning gains and losses are settled regularly, and margin calls must be met immediately in the event of a drawdown. A margin trader will be liquidated if BTC retraces past their margin balance.

So, while a savvy trader might mimic Saylor’s strategy and scale into BTC as it appreciates, even a modest pullback could trigger forced liquidations, wiping out this trader’s position. This daily margin requirement makes it extremely difficult for individual investors to replicate the Strategy’s long-term accumulation strategy using futures. Therefore, Strategy has a substantial financial advantage, enabling it to run a leveraged BTC strategy more effectively.

MSTR’s Capital Strategy and Bitcoin Yield

Strategy’s financial engineering has added substantial debt and shares to its balance sheet to gain more BTC exposure for each common share. This is because Strategy’s core goal is to increase the exposure of common shares to the BTC price. Saylor calls the increasing amount of BTC per share “BTC Yield.” This key performance indicator (KPI) for Strategy is calculated by comparing BTC holdings per common share over time. As of May 2025, the YTD BTC yield is approximately 14% using issued common shares and around 13% on a fully diluted basis. Strategy’s minimum target for BTC yield in 2025 is 25% . This would correspond to increasing the amount of BTC per 1,000 MSTR shares from ~ 1.79 BTC , its ratio as of 5/8/2025, to ~ 1.99 BTC by the end of the year.

Strategy's Bitcoin (BTC) Yield Faces Tough Forward Comps

Source: VanEck Research as of 5/8/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

The management team of Strategy has many options for creating BTC yield. They can sell various financial products to acquire BTC to increase the numerator or buy common shares to reduce the denominator. Since MSTR trades at a Premium, it is more logical to sell “expensive shares” or issue debt to acquire BTC. Selling common shares through an ATM to buy BTC may be the simplest method, but it is also the most dilutionary and involves buying the most BTC. Saylor mentions this dynamic on the 1Q2025 Earnings Call, noting they prefer to acquire BTC using sales of perpetual, non-convertible equity stock.

BTC KPIs Illustration for $100M Insurance of Different Securities

Source: Strategy As of 5/8/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

If Saylor were to add no additional common shares to achieve Strategy’s yield targets, he would have to buy 58,312 BTC, which would be around $5.9B at current prices . On the other hand, if Saylor were to add the exposure using only common stock, he would need to issue ~ 25.8M shares to buy 106,305 BTC worth $10.8B at today’s BTC prices. Given the capital markets’ voracious appetite for Strategy’s capital stack, it would seem likely that Strategy will easily achieve a 25% yield for 2025.

High BTC Yield is Unsustainable

Dollars ($M) required to increase MSTR Yield by 1 Basis Point (90-Day Moving Average)

Source: VanEck Research as of 4/11/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

The reality of Saylor’s Bitcoin gambit is that high Bitcoin yields are unsustainable due to decreasing returns to scale. As Strategy accumulates more BTC, generating meaningful additional Bitcoin yield becomes significantly harder. This is because the amount of BTC required to produce each incremental basis point of yield increases disproportionately as the total stack of BTC grows.

For instance, in August 2021, MicroStrategy needed just 2.6 BTC to generate one basis point of Bitcoin yield. By May 2025, that figure had ballooned to 58 BTC . Measured in dollar terms, the capital needed rose from approximately $126k to $5.5M for the same unit of yield. This reflects a fundamental mathematical reality: as the Bitcoin base of Strategy grows, each new BTC contributes less marginal yield, and the capital required to generate yield increases exponentially. This compounding inefficiency creates a declining ceiling on sustainable yield.

Assessing Strategy’s Convertible Bonds

Source: VanEck Research, Strategy as of 4/2/2025. Past performance is no guarantee of future results. The information, valuation scenarios, and price targets in this blog are not intended as financial advice or any call to action, a recommendation to buy or sell, or as a projection of how bitcoin will perform in the future. Actual future performance of bitcoin is unknown, and may differ significantly from the hypothetical results depicted here. There may be risks or other factors not accounted for in the scenarios presented that may impede the performance. These are solely the results of a simulation based on our research and are for illustrative purposes only. Please conduct your own research and draw your own conclusions.

Convertible bonds are hybrid securities that combine the characteristics of fixed income with the upside potential of equity. Specifically, they consist of a traditional bond and an embedded call option that allows holders to convert the bond into MSTR common stock under certain conditions. The total value of a convertible bond equals the value of the bond plus the value of the conversion option. Thus, investors who buy a convertible bond are allocating part of their principal to a corporate bond and part of the principal to a call option. As a result, the prices of convertibles are sensitive to option pricing variables like underlying price, delta, gamma, etc., as well as bond pricing factors like interest rates and credit spreads.

Strategy’s convertible notes have added special provisions that cap upside from the attached option and also allow investors some protection on principal. Strategy embeds “redemption options” which permit the company to buy back the notes at face value plus unpaid accrued interest after the redemption date. The most common provision across Strategy’s converts allows the company to redeem the bonds if MSTR is trading at 130% of the strike price of the convertible bond. This stipulation caps upside on the option value of the bond once the redemption date passes. Strategy also gives its convert holders, except for the 3/1/2030 issue, the ability to sell back their bonds at face value to Strategy for cash past the holder redemption date. This can be considered a bond price floor if Strategy runs into financial trouble.

The Mar 15, 2030 Convert Has Most Leverage to MSTR Price Due to Its Large Option Component

Source: VanEck Research as of 4/2/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

Due to the underlying equity’s extreme volatility, MicroStrategy’s convertible bonds carry substantial embedded option value. Depending on the issuance, the share of a bond’s total value attributable to the option can be as high as 74% . The higher this proportion, the more exposure the investor has to MSTR stock price movements. This exposure changes materially as MSTR’s volatility oscillates and as the options move in or out of the money.

Among the outstanding convertibles, the March 2030 B notes have the risk profile most closely aligned with MSTR’s stock. In high-volatility scenarios (e.g., MSTR VOL > 80 ), whether the stock moves up or down, this issue exhibits the most sensitivity to MSTR’s price. Conversely, the December 2029 bonds exhibit the least sensitivity, as their embedded option is the furthest out of the money. This results in the option contributing a smaller portion to the overall value of the security, reducing its impact on the bond's price movements.

Implied Credit Spreads vs. BTC-Adjusted Credit Estimates for Strategy’s Convertible Bonds

Source: VanEck Research, Strategy as of 5/7/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein.

The bond component of Strategy’s convertible debt is a point of contention due to the high credit spread priced in each of the bonds. The wide credit spreads reflect the market’s risk assessment of Saylor’s bonds and thus price the bonds “cheaply.” As Saylor notes on his 1Q2025 earnings call, Strategy’s fixed income securities have credit spreads that range between 500 bps and 1,250 bps . This places Strategy’s bonds in the same credit spread category as “double or triple junk bond credit spreads.”

Saylor contends these credit spreads are so immense because the market does not properly evaluate the value of the BTC collateral backing them. Because credit agencies do not adequately assess Strategy’s bonds, Saylor claims, many long-term investors do not purchase the bonds due to the perceived risk. This lowers their market price and contributes to the wide credit spreads.

Saylor uses option pricing models to create his own analysis of Strategy’s converts to make his case that the bonds are underpriced due to incomplete collateral consideration. Saylor creates the concepts of “BTC Rating” and “BTC Risk” to describe the potential risk of Strategy’s debt. BTC Rating is the multiple of a bond’s par value backed by Bitcoin holdings at current BTC market prices. This metric is applied across all bonds and adjusted for seniority preference in the event of a liquidation of Strategy’s BTC holdings. For example, the 9/14/2028 bond’s BTC Rating is 52.1x because the value of Strategy’s BTC, at current BTC prices and according to the bond’s seniority, is 52.1x the par value of the bond.

Saylor employs a “BTC Rating” in tandem with an options pricing model, using the current BTC price and volatility to determine the probability that BTC would trade below the BTC liquidation price, making each bondholder whole. He calls this calculated probability “BTC Risk,” which he then inputs into a bond pricing model to generate a new “Credit Spread,” which he terms “BTC Credit.” As the table above demonstrates, Saylor believes the market is wildly overpricing Strategy’s probability of default on each bond, causing the bonds to trade cheaper than if the bonds were “properly” assessed.

Implied Yield on Bond Component of MSTR Convertibles

Source: VanEck Research as of 4/7/2025. Past performance is no guarantee of future results. Not intended as a recommendation to buy or sell any securities named herein. Any projections shown are those of VanEck and based on the firm’s own research, are for illustrative purposes only, are valid as of the posting date of this content and are subject to change without notice.

A key concern with Strategy’s convertible notes is the outsized influence of the embedded option components on their pricing. As a result, many issuances currently trade well above their par value, which acts as a downside backstop. This means that significant portions of the bonds’ values can decline if the option premium erodes. For instance, the 2028 Convertible Note is priced at $227.15 as of 5/7/2025. If MSTR's stock falls below the bond’s conversion price of $183.19 at maturity, the bond would be worth only $100, assuming all other factors remain constant. This reflects the substantial option premium embedded in these instruments.

Another notable risk associated with the embedded option is sensitivity to changes in volatility, among other factors in option pricing. We estimate that if volatility declines from 85 to 50 , the bonds will fall in value by approximately ( -13% ) on average. A further drop in volatility from 85 to 30 would lead to an average price decline of around ( -20% ).

MSTR’s stock performance is heavily influenced by its Premium, which accounts for 87% of the stock’s volatility and 96% of its total return. In our view, this suggests that investors in MSTR convertibles are not just purchasing an option on the stock itself. They are effectively buying an option on the continued existence of the Premium. This Premium is largely driven by the price of Bitcoin. As Bitcoin rises, the company gains greater ability to finance additional purchases, which in turn inflates the projected value of its holdings and supports speculation in MSTR’s stock.

If Bitcoin's value declined, the Premium would also likely fall. We estimate the relationship has a beta of approximately 1.77x , meaning the premium's value could drop significantly relative to Bitcoin. This decline would erode the value of the convertible’s option component.

The fixed income portion of the convertible bonds is also at risk due to the same factor: the premium. The straight bond’s value depends in part on the company’s ability to raise future financing. Strategy does not generate sufficient revenues to service its fixed income obligations, let alone repay principal at maturity. A decline in the Premium would weaken Strategy’s financing capacity and likely result in wider credit spreads. This would reduce the value of the corporate bond portions of the convertibles. The precipitating cause of the attrition of the Premium would likely be a fall in BTC price. This decline in Bitcoin also aggravates the value of Strategy’s converts because of the lowered probability of full recovery value in the event of a BTC liquidation.

This downside scenario is not presented as inevitable, but rather to highlight that both components of the convertible bond, the option and the bond itself, are tied to the same underlying drivers: the price of Bitcoin and the MSTR Premium. While some investors may be able to hedge these risks, many will struggle to understand them, let alone manage them effectively. MSTR convertibles may appeal to investors seeking yield with potential upside, but they involve many risks. These instruments may be suitable for sophisticated investors capable of executing dynamic hedging strategies and analyzing the behavior of equity-linked debt.

Convert Value Upside from Credit Risk Tightening

Source: VanEck Research as of 5/7/2025. Any projections shown are those of VanEck and based on the firm’s own research, are for illustrative purposes only, are valid as of the posting date of this content and are subject to change without notice.

However, Strategy’s converts provide an exciting vehicle for speculating on the advancement of crypto accounting practices. If credit rating agencies take a more favorable view of Bitcoin as collateral for debt, this could cause the credit spread to tighten dramatically. This should increase the value of Strategy’s converts significantly by increasing the bond portions. If Strategy’s bonds reach even Saylor’s least sanguine estimations of their “true” credit spreads, we calculate the median increase in convert value to be ( +16% ). In fact, the converts with a greater portion of bond value will see their prices increase the most.

The two most appealing targets would be the 12/1/2029 ( +31% upside ) and the 3/1/2030 ( +26% upside ). Given that the 3/1/2030 is nearer to being in-the-money on its option, the combination of upside from the conversion of its credit spread to Saylor’s “BTC Credit” and its high option value may prove attractive to the intrepid speculator. However, for traditional long-only investors, these bonds present a bundle of risk exposures that may be too challenging to manage. On a relative basis, we believe they are less attractive than other parts of MSTR’s capital structure.

MSTR Price Simulation (BTC +/- 80% @ MSTR Vol = 80)

Simulation assumes MSTR Vol = 80, BTC falls 80% in 3 months.

Source: VanEck Research as of 4/2/2025. Any projections shown are those of VanEck and based on the firm’s own research, are for illustrative purposes only, are valid as of the posting date of this content and are subject to change without notice. Not intended as a recommendation to buy or sell any securities named herein.

STRK Overview and Analysis

STRK is called a “preferred perpetual convertible equity,” with several concepts rolled into one security. It provides a perpetual dividend at 8% of face value, and this dividend is payable in cash or common shares. However, there are restrictions on remitting common shares instead of dividends. These include capping the total number of shares that can be paid to satisfy the dividends, such as if MSTR’s value falls below 35% of its 1/27/2025 price of $347.92 . STRK also provides an option on MSTR shares with no maturity date (no theta decay to option component value) and liquidation rights typically associated with preferred equity. Like a convertible bond, but lower in seniority, it is a fixed income security with an attached call option that is deeply out of the money with a strike price at $1000, which is 2.5x higher than the price where MSTR currently trades (as of 5/7/2025).

At the time of writing, we calculate that 36% of STRK’s price is derived from the call option, giving holders upside exposure to MSTR. Because MSTR’s volatility is so high and the option is perpetual in duration, STRK’s option on MSTR already trades at a delta near 1 despite it being deeply out-of-the-money. This means that the price fluctuations of STRK already closely mirror those of MSTR (in the option component of STRK).

Until MSTR’s equity price approaches the conversion strike, we expect STRK to exhibit asymmetric sensitivity to changes in volatility skewed heavily to the downside. For example, if implied volatility increases from approximately 80% to 120% , we estimate STRK would appreciate less than ( +0.01% ). However, if volatility declines from 80% to 40% , we project STRK’s price would fall by ( -3% ), and a further decline in volatility to 20% would result in a loss of approximately ( -19% ).

This asymmetry arises because the embedded call option in STRK is currently far out of the money and perpetual in nature. In such cases, increases in volatility beyond a certain point do little to increase the option’s probability of finishing in the money, which flattens the upside response. Conversely, reductions in MSTR’s current volatility can sharply reduce the probability of finishing in the money, leading to disproportionately large price declines. This convex volatility exposure, limited upside, and substantial downside are key features of STRK’s risk profile. Stepping back, it is interesting to consider STRK as a security that pays you to be long a call option, but that upside is capped compared to even simply buying MSTR.

STRK Value Falls Assymetrically Lower with Volatility Declines

Source: VanEck Research as of 4/7/2025. Any projections shown are those of VanEck and based on the firm’s own research, are for illustrative purposes only, are valid as of the posting date of this content and are subject to change without notice. Not intended as a recommendation to buy or sell any securities named herein.

From a pricing standpoint, we expect STRK’s price movements to be significantly muted relative to changes in MSTR’s equity price, both on the upside and the downside. For instance, we compute that a ( +100% ) increase in MSTR’s stock price would, all else equal, result in approximately a ( +37% ) increase in STRK’s price. Conversely, a ( -50% ) decline in MSTR’s stock would lead to an estimated ( -17% ) drop in STRK’s value.

However, in downside scenarios, it is likely that STRK’s credit spread will also widen, which is an important factor that impacts the value of its preferred equity component. For example, if the credit spread increases by 500 basis points , rising from 700 bps to 1,200 bps , alongside a ( -50% ) decline in MSTR’s equity price, the combined effect could drive STRK’s price down by approximately ( -30% ). We believe this occurrence is likely because Strategy’s credit spread direction tends to follow MSTR price. Interestingly, STRK’s implied credit spread is closer to Saylor’s BTC-based estimation than Strategy’s converts. This implies there is less upside from STRK’s credit spread converging to Saylor’s calculations.

Strategy Liabilities and Capital Structure

Assuming $95,000 BTC Price , 50% BTC Volatility, and 0% BTC ARR ("Skeptic")

Source: FactSet, Strategy as of 5/7/2025. Not intended as a recommendation to buy or sell any securities named herein.

¹ Duration calculated until put date for converts. Duration calculated as Macaulay duration for preferred equity.

² Calculated as the probability that BTC Rating falls below 1x at the end of the given Duration, using a lognormal model adjusted for BTC ARR and BTC Volatility.

³ Calculated by annualizing BTC Risk assuming the same risk each year and no recovery if collateral falls short. BTC Credit = (-ln(1 - BTC Risk) ÷ Duration).

⁴ Source: Bloomberg, Kynex. Assuming 0.50% borrow cost and 60% vol to calculate credit spread for convertible notes. Assuming 200 bps embedded call option value in STRK.

As noted above, Strategy intends to sell approximately $20B of additional STRK. These future issuances would further increase claims on the dividends generated by Strategy and thus its risk profile. Even without additional STRK sales, Strategy’s capacity to pay existing dividends in cash appears constrained. STRK is even further down the capital stack than Strategy’s suite of convertible notes, and the result is that Saylor classifies STRK’s BTC Risk for STRK to be much higher than the converts. In Strategy’s baseline assessment (not BTC price appreciation), there is a 46% chance that the value of Strategy’s BTC holdings will fall below the implied backing of STRK within a year.

In our view, several structural elements of STRK present considerable downside risk without commensurate upside potential. These include weak BTC backing, the ability to suspend dividends, and the small option component of the bonds. Additionally, there is little opportunity to see price appreciation from credit spread re-rating.

As a result, we believe the risk-reward profile of STRK is suboptimal for long-term investors, particularly when compared to the profile offered by MSTR equity. However, very active investors with a strong aptitude for hedging out STRK’s risk may find the volatility and dividend profile enticing. Income-oriented, active investors who would still like some upside from MSTR equity may be very enticed by STRK. Furthermore, very bullish long-term investors on Strategy may find STRK more interesting because its option component gives a delta of near 1 while also providing an attractive yield.

STRF Overview and Analysis

STRF is a plain-vanilla preferred equity instrument that pays a fixed 10% annual cash coupon. Unlike STRK, it does not have the flexibility to pay dividends in common shares. Currently, STRF trades at $94.30, so its effective annual yield is around 10.6% .

Its valuation is primarily driven by prevailing interest rates and Strategy’s credit spread. Under the terms of the agreement between Strategy and STRF holders, each missed dividend payment results in a 100 basis point increase in the coupon rate, up to a maximum of 18% . If four consecutive payments, or eight in total, are missed, STRF holders gain the right to elect a director on the Strategy’s board. This right is revoked once all missed dividends are repaid. STRF ranks higher in the capital structure than both STRK and MSTR common equity, giving it stronger claims in the event of liquidation. However, that claim is weak as its BTC Rating is 5.8x compared to STRK’s at 5.3x.

These protections are meaningful given that MSTR has not generated meaningful cash flow since 2021, but are still rather weak given BTC’s volatility. If MSTR’s core business deteriorates further or the company loses access to capital markets, it may suspend dividend payments. In such a case, STRF begins to resemble a long-duration, subordinated bond with significant credit risk but no equity upside. If this event happens concurrently with the decline in BTC, which is a likely scenario, the value of STRF will be materially affected.

The largest challenge with STRF is that it will not benefit from the upside of Bitcoin while exposed to sharp BTC price declines. Since lower Bitcoin prices can impair Strategy’s ability to meet its cash obligations, it will increase its credit spreads. This view is backed up empirically because STRF is correlated 50% with MSTR and 55% with BTC. We calculate STRF credit spreads to be ~ 6.1% based on current market prices. If this credit spread approaches even the median of those of the convertible bonds, 10.25% , this would decrease the value of STRF by ( -28% ). Like STRK, STRF is heavily exposed to the price of BTC and the MSTR Premium.

In our view, STRF presents a risk profile that does not make an ideal investment for a long-only investor because it is exposed to factors that are difficult to underwrite given STRF’s upside ceiling. However, the risk profile of STRF may be ideal for a very advanced investor who can apply the STRF dividends towards buying options for some BTC upside exposure or downside protection.

Conclusion on Strategy’s Capital Stack

The entire structure of Strategy’s capital stack is highly related to:

1. BTC’s Price
2. Strategy’s ability to raise more funds to buy BTC
3. BTC’s and MSTR’s Price Volatilities

MSTR offers an asymmetric investment profile that combines leveraged BTC exposure, regulatory accessibility, and public market liquidity. While the capital structure is complex and carries material risks, MSTR’s design gives investors a unique vehicle to participate in Bitcoin’s upside through difficult-to-replicate leverage and strategic optionality. For those unable or unwilling to hold Bitcoin directly or manage futures strategies, MSTR serves as a more practical and effective alternative. Continued investor confidence, stable access to capital markets, and disciplined execution remain essential to maintaining this investment thesis.

Recommendations for Firms Considering a Bitcoin Treasury Strategy

From a strategic standpoint, Strategy offers several key lessons for firms considering implementing a Bitcoin treasury strategy.

First, there must be a clearly defined objective behind adopting a Bitcoin treasury. Strategy exemplifies this through its singular focus on increasing BTC holdings per share, rather than adhering to traditional financial metrics such as dilution or enterprise value in fiat terms. Under Michael Saylor’s leadership, the firm has reoriented its valuation framework around Bitcoin itself. Saylor views success not in terms of dollar-based returns, but in the amount of Bitcoin each MSTR share represents. This clarity of purpose has enabled consistent, long-term decision-making, even amid market volatility.

Second, a company must develop a well-structured financing strategy that leverages market dynamics to support BTC accumulation. Strategy accomplishes this aim by tapping into investor appetite for volatility and embedded optionality. Saylor has built a financial ecosystem that attracts retail investors and active traders through a mix of convertible bonds, preferred equity, and common stock issuances. The volatility of BTC feeds into MSTR’s volatility, which in turn sustains demand for its securities. For example, the open interest in MSTR’s equity options, which are used to trade against MSTR’s capital stack, is greater than GOOG’s and AMZN’s ( $95B vs $80B and $84B ). This dynamic exists despite GOOG’s market capitalization being 15x that of MSTR’s. This flywheel effect has allowed Strategy to finance its Bitcoin purchases at favorable terms, with low cash obligations, and without relying solely on traditional debt or equity issuance.

Finally, firms pursuing similar strategies must recognize that market demand for BTC-linked securities will not materialize automatically. Investor engagement, innovative structuring, and transparent communication will be critical. Whether through traditional issuance, structured products, or digital asset integration, companies must craft financial instruments that provide both yield and/or substantial upside to attract capital. Because implementing the Bitcoin Treasury strategy will contradict most planks of financial theory, HOLDers must build an ironclad investment narrative that supports a Bitcoin strategy. Michael Saylor’s outsized public profile is no accident and demonstrates implicit recognition that the market needs to believe in the Bitcoin Treasury strategy to succeed.

Key Risks to Strategy’s Bitcoin-Financing Model

A range of macro, structural, and execution risks could impair Strategy’s ability to sustain its Bitcoin accumulation strategy and support MSTR’s valuation.

1. Decline in bitcoin price
   1. Strategy’s business model is predicated on BTC appreciation. A sustained drop in BTC price could undermine both the value of existing holdings and the viability of future financing.
2. Reduced volatility in BTC or MSTR
   1. Lower volatility diminishes investor interest in MSTR’s convertible bonds and preferred shares, which rely on optionality to attract capital.
3. Collapse of MSTR’s Premium to NAV
   1. The market premium above NAV fuels much of MSTR’s upside and its ability to issue accretive equity. A sharp contraction would impair capital-raising capacity and shareholder returns.
4. Deterioration of core business operations
   1. Though increasingly de-emphasized, Strategy’s software business still contributes to cash flow. Further erosion could limit financial flexibility during market downturns.
5. Regulatory changes enabling leveraged BTC products
   1. New ETFs or structured products offering leveraged BTC exposure could reduce demand for MSTR as a proxy vehicle.
6. Emerging competition from copycat strategies
   1. New firms adopting similar BTC treasury models may fragment investor interest and saturate capital markets seeking BTC exposure through leverage.
   2. New competitive upstarts can achieve higher BTC Yield and BTC per share than Strategy with less capital because they are smaller in size relative to Strategy
7. Forced liquidations to meet debt obligations
   1. In the event of severe drawdowns or financing shortfalls, Strategy could be compelled to sell BTC holdings to service debt, negatively impacting BTC per share.
8. Weakened demand for Strategy’s securities
   1. Strategy intends to raise over $22 billion to continue its BTC purchases. A drop in investor demand would compromise its ability to execute this plan.
9. Dilution of BTC per share holdings
   1. Actions such as issuing new shares to meet dividend or financing obligations could reduce BTC per share, undermining Strategy’s core KPI: Bitcoin yield.
10. Capital market instability
    1. MSTR’s business model depends on continuous access to functioning, liquid capital markets. Disruptions could threaten both operations and treasury expansion.
11. Rising interest rates
    1. Higher rates increase the cost of debt issuance and reduce investor appetite for low-yield convertibles, limiting Strategy’s ability to fund BTC acquisitions.

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