Strategy Continues Prioritizing STRC
Today’s weekly 8-K reveals that MSTR sold 1,638 BTC for approximately $104M and raised another $291M through sales of MSTR common stock. Of the combined proceeds, $81M was used to repurchase STRC, while the remainder was added to the USD Reserve, bringing the reserve to approximately $4B, or 27.4 months of preferred dividend coverage. This is consistent with the company’s shift in strategy, which was further reinforced during last week’s earnings call. Below are my primary takeaways from today’s filing and last week’s call:
- STRC is now the focus – MSTR reaffirmed that the old playbook of selling stock above 1x mNAV to buy BTC is behind the company. The company now wants to grow BTC per share primarily by issuing credit, chiefly through its perpetual preferred securities, on the thesis that BTC’s long-term CAGR will outpace STRC’s ~12% cost of capital. In the near term, that means building cash reserves, selling MSTR while it trades above NAV, and monetizing BTC as needed, all with the goal of strengthening STRC’s credit profile.
- Active management – This represents a clear shift away from mechanically buying BTC through the MSTR/BTC valuation “arbitrage.” On the earnings call, management suggested taking a more deliberate approach to BTC accumulation, potentially building cash reserves and slowing BTC purchases when BTC is extended above its long-term moving averages, while becoming more aggressive during periods of weakness below trend. They also acknowledged a clear execution error this year, allocating roughly 99% of capital raised toward BTC while allowing the USD Reserve to fall to just 6 months of preferred dividend coverage, an approach they described as “counterproductive.” As a result, they were forced to repair the balance sheet with BTC already well off its highs. Longer term, this approach could make Strategy’s BTC demand less procyclical, although it also introduces considerably more execution risk.
- STRC remains the key chart to watch – One dynamic worth monitoring is management’s stated desire to return STRC to par around September 8th, which roughly corresponds to the 70-trading-day recovery period discussed on last week’s earnings call. While this is not a hard deadline, an aggressive repurchase program would likely require additional BTC sales. The USD Reserve is effectively earmarked for dividends and interest, while MSTR trading only about 5% above NAV limits the attractiveness of issuing additional equity. This will be an important dynamic to watch through the remainder of Q3.
- Today’s market reaction was encouraging – One constructive takeaway from today’s filing was the market’s response. Despite the company disclosing additional BTC sales, both STRC and BTC traded higher on the day. While one day’s price action should not be overinterpreted, it suggests investors are becoming more comfortable with Strategy’s new capital allocation framework. At least for now, the market appears willing to tolerate measured BTC monetization so long as it contributes to restoring confidence in STRC and the broader capital structure. But one should remain cognizant that more aggressive measures are possible if STRC does not return to par in a timely fashion.
Manufacturing Data Reinforces the View That This Is a Different Business Cycle
July’s ISM Manufacturing PMI was, in my view, a constructive “Goldilocks” report. Orders, production, and employment all improved, while price pressures remained elevated but continued moderating.
I do not think this provides much of a read-through for the coins, however, as the relationship between PMIs and BTC has largely broken down. Prior to this cycle, BTC generally tracked the business cycle, as denoted by PMIs, reasonably well because economic growth was largely downstream of Fed policy. This cycle has deviated from that pattern, with much of the current expansion being driven by hyperscaler balance sheets financing the AI buildout. This rhymes with the “S&P 500 EPS vs. Liquidity Growth” framework we have discussed over the past couple of weeks. There has not been the same broad-based, liquidity-fueled expansion that traditionally supported BTC’s strong relationship with PMIs.
Constructive Read-Through for Miners
While today’s PMI likely doesn’t move the needle much for the majors, there was one encouraging detail for the Crypto Equities Portfolio. Several survey respondents specifically highlighted continued strength in demand for semiconductors, high-performance computing, networking, photonics, and AI infrastructure.
That aligns with the broader thesis we’ve discussed over recent weeks. While valuations across AI infrastructure beneficiaries have compressed meaningfully, the underlying demand environment continues to appear healthy. Combined with recent stabilization in crude oil and a potentially more constructive backdrop for long-end Treasury yields, I continue to think conditions are gradually improving for the mining cohort.
This is certainly not an “all clear,” but after the recent washout, I think the balance of risks is becoming increasingly favorable.
Yen Dynamics May Become Less of a Headwind
One additional macro development worth highlighting came from the Treasury. Recent yen appreciation has largely reflected coordinated efforts by US & Japanese policymakers to stabilize the currency, something we’ve discussed previously as a potential headwind for global liquidity.
Interestingly, Treasury Secretary Scott Bessent indicated that the Bank of Japan will be able to access dollar funding through the Fed’s foreign repo facility rather than relying as heavily on outright Treasury sales to finance intervention. While somewhat technical, that could reduce one potential source of upward pressure on long-term Treasury yields if Japanese authorities continue supporting the yen.
Combined with easing crude prices, that creates at least a modest window for yields to consolidate after their recent move higher.
Clarity Remains a Waiting Game
There was little incremental news on the Clarity Act today. The revised ethics language reportedly remains under review at the White House, leaving the legislation in something of a holding pattern.
That said, reports out of Washington suggest Senate Majority Leader John Thune remains committed to addressing the legislation before recess alongside several other major priorities. While the timeline remains challenging and I continue to think prediction markets are roughly pricing the odds appropriately (~27%), I also don’t think investors should write the probability of passage down to zero.
As we’ve discussed repeatedly, the evolution of the ethics language remains the key variable to watch.
Solana Governance Could Become an Underappreciated Catalyst
One development I think deserves more attention involves two Solana Improvement Documents (SIMDs) that moved one step closer to a governance vote today.
The proposals would accelerate SOL’s disinflation schedule while also increasing the amount of SOL removed from circulation through token burns. Together, they would represent a meaningful improvement to the network’s tokenomics by reducing future supply growth while increasing structural demand through higher burn rates.
These proposals still need to progress through governance, so I don’t want to get ahead of the process. However, assuming they ultimately pass, I think they represent a constructive near-term catalyst that has received relatively little attention from the market.
Tickers in this video: BTC 0.14% SOL 0.32% STRC MSTR
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