Arca CIO: MicroStrategy’s Bitcoin financing loop is breaking

Arca Chief Investment Officer Jeff Dorman warned that MicroStrategy’s financing structure tied to its Bitcoin holdings is under strain after a large cash repurchase in May. The company used about $1.38 billion to retire $1.5 billion face value of zero-coupon convertible notes due 2029, narrowing its cash reserve to about $871 million.

MicroStrategy held 843,738 bitcoins as of May 25 and has built a preferred stock structure totaling roughly $15.5 billion across STRC, STRK, STRF and STRD series. The STRC tranche carries a variable dividend that the company recently raised to 11.5%. Annual preferred dividend obligations total roughly $1.5 billion.

The repurchased convertibles were zero-coupon notes. The buyback cost the company most of its cash reserve while realizing an approximately 8% discount on the face value. The transaction reduced outstanding convertible exposure and left a smaller cash buffer to meet recurring preferred dividend payments.

Bitcoin traded near $72,550 at the time of the warning, down almost 6% over the prior week. The decline reduces the implied collateral backing the company’s strategy of using securities and debt to support its Bitcoin accumulation.

Dorman wrote on X that the competing claims on MicroStrategy’s balance sheet had created pressure on three groups of stakeholders. He posted: ‘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.’ His comments framed the tension between selling bitcoin to cover dividends and preserving the company’s long-term accumulation position.

MicroStrategy began using debt and preferred securities to finance bitcoin purchases several years ago and is one of the largest corporate holders of BTC. Market participants and analysts are watching the company’s next financing and capital allocation decisions for signals about how it will prioritize cash for dividend payments, debt obligations and bitcoin holdings.