MSTR Shareholders Face Dilution as MicroStrategy Resumes Bitcoin Accumulation

Crude oil closed out October at $117.64 per barrel. Inflation in the United States sits at 3.7%, and two members of the Federal Reserve pushed for a rate rise last week. All the same, Michael Saylor is hinting that his firm, Strategy—the company previously called MicroStrategy—might reveal another Bitcoin acquisition when markets open on Monday.

In a Sunday post on social media, Saylor wrote:

“We found room for even more orange.”

Why Buy Bitcoin if the Economy Is Struggling?

This reflects a strategy of high-conviction accumulation, acquiring an asset during turbulent times based on an expectation of long-term appreciation.

It is a contrarian approach to investing. The main risk, however, is overconfidence that persists even as the facts on the ground shift.

Saylor's conviction is transparent. In the company's earnings release on Thursday, he stated:

“We’re at the beginning of the next bitcoin bull market.”

Meanwhile, costly crude continues to drive inflation higher. Fuel prices jumped 34.2% in the twelve months ending September.

The Federal Reserve maintained its rate range of 3.75% to 4% at its October 28 meeting, even as two officials voted for a hike. Chair Kevin Warsh said there has been “a stable correlation between oil prices” and market rates this year, though he added the connection has softened in the most recent period.

Rising yields can make lower-risk investments more appealing relative to Bitcoin. They also have the potential to make capital raising more challenging for Strategy.

The Dilution Risk Facing MSTR Shareholders

The firm holds 848,517 BTC, valued at roughly $66 billion on Sunday, compared with a total acquisition cost of $64 billion. Its unrealized gain has tightened.

During October, the company bought 334, 250, and 267 BTC over three separate weeks. Strategy then halted Bitcoin buying to spend $204.9 million on repurchasing its own shares of STRC, its preferred stock that pays dividends.

Additionally, the firm sold 5,552 BTC in Q3 to cover preferred dividend obligations and support its share buyback programs.

The company frequently issues new shares of MSTR common stock to fund its Bitcoin acquisitions. This practice dilutes the holdings of existing shareholders, even as the overall bitcoin treasury grows. Its metric for Bitcoin per diluted share declined by 3.7% this year.

Updated guidelines from MSCI also put MSTR's place in its indices at risk. Such a change could compel passive funds to liquidate their positions.

The regulatory filing expected on Monday will reveal if Strategy has made another purchase. For the firm's equity holders, what truly matters is whether that filing shows each outstanding share is backed by a greater amount of Bitcoin than before.