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Institutions Are Primed for MicroStrategy's Preferred Stock Sale, Say Analysts
A "near perfect" instrument is how Bitwise's Jeff Park described the new offering.
What to know:
- MicroStrategy is opening up a new avenue to raise capital for bitcoin with its perpetual preferred stock offering.
- Some analysts believe the new vehicle could be a major success.
- BlackRock's PFF is the largest U.S. ETF focused on preferred stock with about $15 billion in AUM.
Disclaimer: The analyst who wrote this piece owns shares of MicroStrategy (MSTR).
STORY CONTINUES BELOW
To say that MicroStrategy (MSTR) has been at the lead of creatively raising capital with which to buy massive amounts of bitcoin (BTC) would be an understatement. Led by Executive Chairman Michael Saylor, the company this week opened a new front along those lines with its perpetual preferred stock offering (STRK).
Preferred stock sits between equity and debt on the corporate balance sheet, offering investors the regular return of bonds while giving them an ownership stake in a company.
Well-followed MicroStrategy analyst Ben Werkman, posted on X about the attraction preferred stock can offer institutional investors due to its lack of maturity risk, stable yield and optional equity upside.
"I could see a scenario where [the preferred stock] starts taking some of the convertible bond space for fixed income accumulation due to the lack of any point in time maturity risk," said Werkman. "Preferred stock has the potential to be massively more accretive than any convertible offering has been and definitely more accretive than [share sales]."
Similar sentiments came via Jeff Park, head of alpha strategies at Bitwise Investments, who called MSTR's preferred stock offering one of the most compelling securities in the market and a next-generation investment vehicle.
"STRK is a near-perfect instrument," wrote Park. "It gives you two chances to win: First, when rates go down, it's a huge boon to the principal, and two, if MicroStrategy goes up first, then you have a deep in-the-money (ITM) option to convert and own the higher volatility asset or just directly sell."
The largest of the U.S. preferred stock ETFs is the BlackRock iShares Preferred and Income Securities ETF (PFF), which has roughly $15 billion in assets under management. The largest holders of PFF ETF are major corporations such as Boeing (BA), Wells Fargo (WFC) and Citi Group (C).
The final pricing terms of the new security are to be completed and announced after the market closes on Thursday.
James Van Straten
James Van Straten is a Senior Analyst at CoinDesk, specializing in Bitcoin and its interplay with the macroeconomic environment. Previously, James worked as a Research Analyst at Saidler & Co., a Swiss hedge fund, where he developed expertise in on-chain analytics. His work focuses on monitoring flows to analyze Bitcoin's role within the broader financial system. In addition to his professional endeavors, James serves as an advisor to Coinsilium, a UK publicly traded company, where he provides guidance on their Bitcoin treasury strategy. He also holds investments in Bitcoin, MicroStrategy (MSTR), and Semler Scientific (SMLR).
