MicroStrategy (NASDAQ: MSTR) kicked off 2025 with perhaps the most daring financial engineering scheme in corporate history. In a Notice on January 3rd stretching the limits of financial credulity, Michael Saylor and friends have revealed plans to raise up to $2 billion through a preferred stock offering, the latest step in what he arrogantly calls “the 21/21 plan,” an almost unimaginable scheme to raise $42 billion over three years to buy (even more) BTC.
The numbers and scale are so large they almost seem unreal.
The company, which generated just $116.1 million in quarterly revenue — down 10.3% from a year earlier — now plans to raise more capital than many Fortune 500 companies combined.
Let’s give this some perspective.
MicroStrategy’s latest recapitalization alone is nearly 20 times its quarterly revenue, and that’s from a company whose core software business is drying up while it transforms into arguably the most leveraged company BTC a bet in the company’s history.
Recently in November, MicroStrategy completed a $3 billion offering of zero-coupon convertible securities due 2029 at a 55% conversion premium while simultaneously using $2.03 billion to acquire 27,200 BTC at an average price of $74,463 per BTC.
But here’s the real kicker: Saylor was in such a hurry to accumulate BTC that it has already exhausted most of its previous supply of shares in the market.
The president of MicroStrategy (and chief architect of this so-called ‘strategy’) likes to talk about ‘intelligent leverage’ and ‘engineering a better world.’ But putting aside the rhetoric and salesmanship for a moment, what emerges will be little more than a dangerous game of financial musical chairs, with shareholders’ equity ultimately at stake.
The circular strategy itself would almost be fun if it weren’t so dangerous.
The company issues equity and zero-coupon convertible notes to buy BTC, hoping that it will basic price grows enough to justify issuing even more equity and debt to buy more.
This feedback loop has worked perfectly in the bull market to date, driving MicroStrategy stock up a staggering 650% year-to-date, far outpacing BTC’s 180% rise.
But this divergence should raise alarm bells.
The company’s fully diluted market capitalization has grown to about $106 billion, far exceeding the market value of its BTC holdings of $31.2 billion. Even after factoring in $4.2 billion in debt, that premium seems extremely excessive for a company whose software business is failing.
And let’s not forget about creating leverage exchange traded funds (ETFs) linked to shares of MicroStrategy, a factor that added rocket fuel to the speculative fire. These instruments (which now represent nearly 9% of the company’s market cap) offer leveraged exposure to MicroStrategy’s already leveraged BTC bet.
It’s a bubble within a bubble.
MicroStrategy justifies this madness with its own performance metric called ‘BTC yield’, which unsurprisingly continues to perform strongly. But here’s the problem: the metric rather conveniently ignores the accumulated large debt burden, instead assuming that all convertible notes will be converted into equity rather than requiring a cash repayment.
This is frankly absurd.
In fact, it’s so problematic that MicroStrategy consumes several pages investor alert on the limitations of the ‘BTC return’, mainly on the fact that it ‘does not take into account debt and other obligations and claims against the assets of the company, which would be superior to ordinary equity.’
Ouch.
The real uncertainty of this strategy becomes clear when considering the severe market decline.
According to Analysis by Saxo BankA 50% BTC correction – not unprecedented in crypto markets – would reduce MicroStrategy’s holdings from $31.2 billion to $15.6 billion, triggering huge impairment charges. Given the company’s leveraged exposure, such a correction could result in a catastrophic 60-80% drop in its share price.
The company’s latest preferred stock gambit adds another layer of complexity to an already byzantine capital structure. These perpetual preferred shares, with their fungibility and dividend obligations, represent another potential claim on the company’s assets that could come back to haunt shareholders in the event of a recession.
And remember, this is just the beginning. MicroStrategy plans to raise an additional $21 billion in fixed income instruments as part of its 21/21 plan.
Consider convertible notes issued with zero or near-zero coupons. These instruments assume that the price of BTC will rise enough to make the conversion attractive. If it doesn’t, MicroStrategy could face huge monetary obligations when those notes mature – liabilities that could force BTC liquidations at exactly the wrong time.
Of particular concern is the speed at which MicroStrategy is accumulating BTC and financial liabilities. Having already used most of its previous equity offering in the market, it is now embarking on an even more ambitious $21 billion program.
This fast pace suggests that the company is racing against time, perhaps betting that current market conditions present a fleeting opportunity that must be seized regardless of the risk.
The harsh reality is that MicroStrategy has transformed itself from a struggling software company into what might be the most sophisticated gaming house in corporate America.
Saylor talks about “engineering a better world,” but the truth is that he’s planning something much more dangerous—a highly leveraged bet that could implode if the BTC price doesn’t cooperate or market conditions turn hostile.
Investors seduced by MicroStrategy’s year-over-year returns would do well to remember that financial engineering, no matter how sophisticated, cannot eliminate underlying risk; it can only transform and increase it.
Ultimately, the question is not whether BTC or “crypto” will be successful in the long term; can MicroStrategy’s increasingly precarious financial structure survive long enough to find out.
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