According to a recent report from TD Cowen, the Bitcoin accumulation strategy has managed to hold steady despite fluctuations in the market last week. The report highlighted an increase in issuance activity, even as the implicit Bitcoin premium associated with the treasury firm has significantly dropped.
The investment bank pointed out that the strategy is acquiring Bitcoin at a quicker pace, driven by the demand for new euro-denominated preferred shares as well as floating rate preferred shares.
“What caught us off guard was the rise in the issuance of floating rate preferred stock, especially considering the notable decline in Bitcoin prices,” wrote analysts from TD Cowen. They added that they believe the strategy still offers an appealing option for those wanting to gain exposure to Bitcoin.
In a research note circulated on Monday, analysts Lance Vitanza and Jonathan Navarrete maintained their investment rating and set a price target of $535 for Strategies (MSTR) common stock.
The strategy is described as a novel approach, aiming to align with “the market’s appetite for volatility and return” while effectively leveraging Bitcoin. It operates as “the first publicly traded Bitcoin treasury company,” according to the analysts.
By utilizing preferred stock, Strategy can raise funds without immediately issuing common shares. The variable rate preference also pays an adjustable dividend, enabling the company to maintain trading near par values. Both instruments provide reliable funding, which Strategy directly converts into Bitcoin, thereby allowing them to continue acquiring it with minimal dilution.
The memo also indicated that the company raised more capital than initially anticipated, swiftly invested it into Bitcoin, and still managed to generate BTC earnings per share, despite the downturn in both Bitcoin and stock prices. According to TD Cowen, the strategy injected around $704 million from the euro-denominated preferred IPO, leading to the purchase of approximately 6,890 BTC.
Meanwhile, shares of Strategy experienced a broader decline on Monday, falling to as low as $189.53 before closing at $195.42.
This drop is indicative of a “broader risk-off rotation,” with analysts at Bitwise noting levels not seen since April, which led to declines in major tokens and tech stocks. The market seems to be recalibrating its expectations regarding liquidity.
Recent issuance patterns still mirror the foundational aspects of the strategy rather than being a reaction to short-term market shifts, according to observers.
“The strategy attracts yield-oriented investors looking for less volatility compared to common stocks. This approach seems sustainable, as the company has the flexibility to adjust dividend rates to facilitate issuance,” stated Ryan Yun, a senior analyst at Tiger Research.
When questioned about the potential for the issuance strategy to persist in generating BTC returns per share if premiums remain tight, Yun responded positively. He mentioned that returns derive from acquiring Bitcoin through non-dilutive capital, like preferred stock, and noted that these returns are “critically accretive” compared to functioning “independently of the market premium of common stock.”
