Stock market investors may be overlooking an interesting metric at Strategy (MSTR), the largest publicly traded holder of Bitcoin. : the capital market measure known as amplification.
The amplification compares the size of the Michael Saylor-led company’s total debt and debt-like instruments, such as preferred stock, to its reserve of 766,970 BTC. As amplification increases, like leverage, it adds more risk to the company, making common stocks more sensitive to Bitcoin price movements.
Investors tend to focus on the price of Bitcoin and the multiple premium to net asset value (mNAV) when evaluating the company. But if the amplification, currently around 33%, increases, it could become the main risk factor.
At the top of Strategy’s capital structure is convertible debt, with about $8.25 billion outstanding, the largest claim. Below that are a number of preferred stocks, including STRC, STRK, STRD and STRF, with a notional value of approximately $10.3 billion, according to the MSTR Dashboard. At the bottom are common stocks, MSTR, which absorb any remaining upside and downside downside.
Read more: Strategy signals further Bitcoin buying as company only needs 2% annual BTC growth to cover dividends.
STRC was designed to become the primary bitcoin accumulation vehicle for the company. Senior to equity and junior to debt, STRC pays an annual dividend of 11.5%, distributed monthly in cash.
STRC volume, once negligible and less than 10% to MSTR, has surged to around 20% on a weekly basis, sometimes exceeding 25%. According to the MSTR Dashboard, on Friday, MSTR traded $1.7 billion, well below its 30-day average of $2.5 billion, while STRC traded $526 million, about double its average of $259 million, or nearly 50% of MSTR’s single-day volume.
Higher STRC activity makes it more difficult to manage amplification without resorting to issuing common stock, which can weigh on performance relative to bitcoin. Over the past 30 days, the price of Bitcoin has remained relatively unchanged, while MSTR has fallen by 11%.
At lower amplification, MSTR behaves like leveraged BTC. At higher levels, it becomes more difficult to manage, on top of about $1.12 billion in annual obligations.
