Yeah. Look. “We are selling billions of dollars of stock at a premium to NAV to buy Bitcoin, which always goes up” is in quite a few respects a great story to tell, you know, Strategy stock enthusiasts. “We are selling a billion dollars of stock at NAV to pay interest on the loans we previously took out to buy Bitcoin” is considerably less fun.

Strategy Inc. (formerly MicroStrategy Inc.) invented the idea of the digital asset treasury company, that is, the idea that the stock market should pay $2 for $1 worth of crypto. At its peak in July, Strategy owned 601,550 Bitcoins, worth about $71.4 billion, and had an equity market capitalization of about $127 billion and an enterprise value of about $139 billion, or roughly twice the value of its Bitcoins.

"WHY was $1 of Bitcoin in Strategy's hands worth $2?"

Strategy is a public company, and it borrowed money in safe, long-term, no-margin-call, corporate sorts of ways. It issued convertible bonds with low coupons, and then later it got into issuing perpetual preferred stock: Strategy could borrow money to buy Bitcoin and never pay the money back.

... can't sell more stock at a big premium to net asset value to buy more Bitcoin. Oh, I mean, it’s still selling stock and buying Bitcoin, or it was as of late last month anyway. But that is no longer especially accretive.

That’s several hundred million dollars of payment obligations each quarter. (Because these are preferred stocks, the coupons are not technically payment obligations: They’re “dividends,” and Strategy can just not pay them. But that would be, you know, bad for its future capital markets strategy, and Strategy does not seem to be considering that option at this point.)

Strategy needs to pay coupons, and if Bitcoin is down and its stock is not trading at a premium anymore, where does it get the money to pay coupons? Well, an obvious answer would be from selling Bitcoins — Strategy does have a lot of Bitcoins — but that’s not ideal. “When Bitcoin prices drop, we have to sell Bitcoins to pay our lenders” is not quite the same as getting a margin call, but it’s not great either. In a downturn, Strategy’s leverage might not be as benign as it looked.