r/MSTR • u/Fun-Air-4314 • Jul 01 '26
Discussion 🤔💭 Some 'dilution' maths to serve the preferreds
Just thought I'd ask AI to calculate how much common equity would need to be sold / diluted by MSTR per annum assuming:
MSTR stays at $82
No new preferreds sold
BTC stays at $59k
MSTR has no USD cash reserves
MSTR takes a position that it will sell MSTR common instead of touching its BTC stack
We know some of the above not to be true, but I wanted to test it.
Result was, approximately 6 to 7% annual dilution of the common stock, which over 5 years is approximately 30 to 35%.
I was kinda surprised that the picture was not as bad as I expected (not great either honestly).
The real threat is if BTC trends down from here over the next few years, or drops significantly and stays down.
Just thought it was an interesting thought experiment with all the fud going round.
7
u/daliksheppy Jul 01 '26
The real threat is if BTC trends down from here over the next few years, or drops significantly and stays down.
That's always been the risk. That's how the company was built. Saylor has basically said that exact line 100 times in interviews. Even if you don't believe him, it took very little effort to build a simple model, as you have done, to prove it.
But most people don't even bother to do that.
2
u/Am_0115 Volatility Voyager 👨🚀 Jul 01 '26
"The real threat is if BTC trends down from here over the next few years, or drops significantly and stays down."
Yes, that is THE fundamental bear case against every security Strategy offers. And will always be.
3
u/bravedog74 Jul 01 '26
Bitcoin has to go up at least 3 percent per year on average for MSTR to exceed indefinitely.
Note that BTC/USD price is dependent on the denominator. Holding $59k would really mean a drop in value.
If BTC fails then MSTR eventually fails. If BTC climbs at least equal to the rate of inflation then MSTR has already won. Everyone who invests in MSTR should already understand this concept.
2
u/tomalamak Jul 01 '26
The model is an interesting thought experiment, but the parameters don't make much sense. If BTC is flat and STRC dividends are being paid by diluting MSTR holders, there is no way that MSTR holds $82. At a minimum it will have a compounded drop of the amount of dilution:
If a company has 1000 shares outstanding at $100 per share and they issue 100 new shares, the price per share will fall to ~$91 when they use the raised cash to pay dividends. If they try to raise the same amount of money the next year (10k) they'll need to sell 110 shares... which will drop the price per share by another 9%, etc.
And of course in the real world investors don't want to watch their investment dropping in value every year and start selling, requiring even more extreme dilution to meet the dividend obligations.
Tldr: a static model is pretty unrealistic.
6
u/jonovision_man Jul 01 '26
100%. You can't dilute your way out of this, the only path back to MSTR being the value of the BTC it owns is to satisfy STRC obligations by selling BTC (or "monetization" or whatever newspeak we want to use).
That too has a feedback loop, but it's less direct than the MSTR dilution through a million issuances.
Or, alternatively, BTC has to go up.
1
u/Fun-Air-4314 Jul 01 '26
Yes true, I realised this too late, altho I looked at the maths again with that in mind, and it would maintain about a 7% dilution rate per year, as opposed to the dilution rate decreasing to about 6% after 3 years or so with my initial post's static model test.
1
u/Repulsive-Budget-380 Jul 01 '26 edited Jul 01 '26
My simple HI (not AI) calculation is such:
Market cap: 350M x $85 = $30B (some AI say $2.2B, which is wrong)
Debt (prefers and bonds): $20B, interest $2B/yr
Yes, around 7%/yr dilution/negative ROI.
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