Strategy shareholders face increasing dilution risk as Bitcoin becomes bullish.

Strategy announced the purchase of Bitcoin worth 22 million USD yesterday, reflecting growing concerns about the potential dilution of shareholder equity. The company has refused to restore protective measures that could prevent this situation.

Strategy is facing two bearish scenarios

The strategy is currently stuck between two unfavorable scenarios. If the company stops buying BTC, it could undermine market confidence. Conversely, if the company decides to dilute shareholder equity to fund these transactions, the company's performance will continue to fall short compared to the assets they hold.

Strategy's Dilution Crisis

Although Strategy has achieved significant success with its Bitcoin accumulation plan, some issues have begun to emerge in recent weeks. The company's buying scale has diminished, with Chairman Michael Saylor announcing the purchase of BTC worth 22 million USD yesterday. This amount, compared to some previous transactions, is indeed quite modest. Furthermore, recent reports indicate an urgent situation for Strategy: the company is increasingly relying on equity dilution to fund these transactions.

If this situation continues, it could lead to a serious crisis, undermining shareholder confidence.

Warning signs of danger

Although Michael Saylor stated in July that Strategy would not reduce the amount of Bitcoin held by shareholders, he made policy changes last month. Specifically, he announced that the company could sell shares for reasons other than buying BTC and had removed protections for investors.

Since the implementation of these measures, Strategy has diluted the common shareholders' equity by 3,278,660 shares to fund over 1.1 billion USD in new BTC transactions. This amount represents 1.2% of the total equity of shareholders and has directly funded approximately 94% of the company's BTC transactions in the past month.

The dilution of Strategy's stock is a serious issue for many reasons, one particularly important reason being that it weakens the investment incentive in MSTR instead of buying BTC. Although the company has purchased around 10,000 BTC since August, its performance still lags far behind this token.

MSTR price performance | Source: Google Finance## No easy way out

Although the company has recently avoided a class-action lawsuit, this is still a significant warning sign. The unstable revenue of Strategy has caused the company to lose many important titles, and the dilution of shares could lead to even more serious consequences.

The company has a fiduciary duty to maximize shareholder value, which may conflict with its buyback objectives. Like the Red Queen in Alice in Wonderland, a BTC digital asset fund must constantly strive to maintain its position. Strategy is a pillar of corporate belief in Bitcoin; if the company stops buying, the token price may drop, despite dilution.

Currently, there is no easy way out of this crisis. Michael Saylor not only needs to continue generating profits; he also has to outperform Bitcoin. Diluting shares may be the only way to keep Strategy at the top position right now, but this could also lead to a bigger collapse in the future.

Mr. Teacher