In the Fall of 2022, FTX was king.
They saved the industry multiple times that summer by bailing other struggling competitors out.
SBF was seen as an altruistic genius.
The face of crypto.
But in just a few short days - all of that changed. His empire imploded.
His bold investments were funded by the exchange’s customers. He treated FTX like a bank, without the proper license to do so.
He probably would have gotten away with it too if it hadn’t been for the fear of a bank run.
“FTX isn’t solvent.”
“Get your money out now if you ever want to see it again.”
“It’s over.”
The irony of the situation - everyone who said that was mostly correct… but only because they all believed it.
They manifested the insolvency.
The illiquid investments SBF made in the bear market would have been worth tens of billions of dollars more than what he put in if the bank run hadn’t have happened.
Here are just a few examples:
- Anthropic: $75B (150X)
- SpaceX: $15B (75X)
- RobinHood: $5B (10X)
- Solana: $5B (10X)
- Cursor: $3B (15,000X)
Instead, the bankruptcy attorneys liquidated the assets for pennies on the dollar.
SBF was arguably a great investor.
But he got greedy.
He felt invincible.
Everything would have to go wrong to such an extreme and impossible degree for him to lose that it was inconceivable.
But it happened.
Despite the pain it caused at the time and how good everyone recognizes those investments would have been today (with the power of hindsight) - most people agree that the FTX collapse was healthy.
Why?
Because they recognize it could have been so much worse had FTX been allowed to operate the same way at a larger scale.
Which brings me to today.
Strategy is the king of Bitcoin.
They’ve purchased tens of billions of dollars of BTC accumulating 4.2% of the circulating supply.
Saylor is a cult like figurehead for the industry.
“Never Sell Your Bitcoin.”
That was his motto.
Was.
At least until recently. He’s flipped the script to “Buy more Bitcoin than you sell.”
The majority of Strategy’s purchases have been funded by at the money common stock sales of MSTR and issuing convertible notes. These mechanisms worked because the stock traded above the value of its Bitcoin: every dollar of stock sold at market price buys $1 worth of Bitcoin: but was “backed” by only about $0.40 worth, with the remainder being pure accretion.
Strategy structured nearly all its early borrowing as convertibles precisely so the debt could dissolve into equity.
The important caveat is that this whole mechanism depends on the stock staying elevated.
If MSTR were to trade below a note’s conversion price as maturity approached, holders wouldn’t convert, and the company would have to repay principal in cash - which it would then need to raise through more equity or debt issuance (or, in a stressed scenario, by selling Bitcoin).
July of 2025 is where things changed.
Strategy launched five preferred equity IPOs, trading under tickers like STRK, STRF, STRD, and most famously STRC. These pay fixed/variable dividends and let the firm raise money without diluting common shares as directly.
At least that’s the pitch.
In 2025, Strategy also issued billions of dollars in 0% Convertible Senior Notes (debt) due 2030.
By 2026 the mix shifted toward preferred and debt over common equity, as the stock’s premium to its Bitcoin compressed.
But those dividend payments for the preferred stock have to come from somewhere.
And if the stock’s premium remains compressed, that debt has to be paid back eventually somehow (which isn’t as much of a priority \yet\, but it will be soon enough).
So first things first - where does the yield for the preferred stock like STRC come from?
There’s a saying I heard after the LUNA/UST collapse that stuck with me that goes something like this:
“If you don’t know where the yield comes from, you are the yield.”
Strategy has annual obligations of ~$1.7B, almost entirely comprised of preferred dividends.
They only have $870M of cash today.
6 months of runway.
They had ~$2.2B of cash just a few weeks ago, but they used $1.38B of it to repurchase $1.5B of convertible debt…
This sounds like a win right?
They got an 8% discount on a future obligation and reduced their leverage!
But here’s the catch:
This is the first time Strategy has repurchased convertible debt for cash at anything like this scale.
Every prior reduction of its converts happened through one of two routes that didn’t involve writing a large check:
Converting into stock or refinancing.
Why is this significant?
Because the mechanism we described earlier where that convertible debt mostly just dissolved into equity is falling apart with the stock to NAV compression.
So what historically would have been considered extra cash for dividend payments runway, now is becoming an additional liability working against them.
What does this mean?
If the price of MSTR remains beneath the conversion price for these notes, the cash obligation stacks up quickly.
Let’s break it down:
- 2027: ~$1.0B
- 2028: ~$4.9B
- 2029: ~$0.8B
Here’s the issue: the majority of these conversion prices are well above what the current price of MSTR is (the lowest being $149, then $183, then much higher).
It’s plausible that some of this could be refinanced like it was in the past, but the difference between now and then is not only has the premium seen compression, but the cash obligations have skyrocketed due to preferred dividends.
There’s a chance some of this can be negotiated lower as well like the recent one was, but either way: the debt is real and can’t be written off in the same way it was in the past.
So what happens when we annualize it from now until the end of 2028 and add it to the $1.7B in obligations from the dividends?
It adds another $2.36B of annual obligations through 2028.
That $1.7B per year jumps to over .
Strategy needs to find a way to come up with an average of $338M of cash per month over the next 30 months.
Less than three months of runway.
Obviously the debt portion isn’t due today, but every month they defer tackling the debt from the future convertible notes - that number gets higher for the remaining months.
So what are their options?
As the Bitcoin price goes lower, so does investor’s confidence that MSTR will be able to sustainably pay dividends to preferred stocks like STRC.
E.g. They have the right to defer paying the dividends, but that just means they push back and compound the obligation - not that they fully remove it. It also kills investor confidence and they’ve shown with their recent vote about the bi-monthly payments that they are prioritizing continuing payments.
As a result of these fears from investors, the targeted $100 peg and liquidation preference starts to show signs of weakness. We’ve already seen that in the last week with STRC touching $91.
A sustained steep discount in STRC effectively eliminates it as a funding source.
It’d be crazy and desperate to sell $100 for $70 (if the price were ever to go that low).
The two options they’re really left with both involve diluting MSTR holders, either by selling Bitcoin or issuing more MSTR.
At the Q1 2026 call, Saylor put the crossover at about 1.22x mNAV - at or above that level it’s accretive to sell MSTR and buy Bitcoin, and below it, it’s actually more accretive to sell Bitcoin to pay obligations.
With the price of MSTR also showing weakness recently, the option to tap into it also becomes much less appealing for that reason - but they’ve already shown they’re willing to do it (e.g. sales in Dec 2025).
But the difference between now and then is they’d be selling MSTR in order to pay STRC dividends or pay off debt - not to buy more Bitcoin.
The effective sats / share of the common stockholders gets diluted with every sale.
But again:
This doesn’t mean they can’t do it.
The remaining authorized ATM capacity is $26.1 billion of MSTR common stock ($21B of which was authorized this March).
They also lifted the authorized share count from 330 million to over 10 billion shares back in January 2025, so there’s no share authorization ceiling in the way either.
And the other option? Selling Bitcoin - they broke trust from Saylor’s initial “Never Sell Bitcoin” pledge and proved at the end of May that they’re willing to do it.
Even if it was just a “small” 32 BTC sale, it represented something much larger.
But what happens when someone with 4% of the supply of a trillion dollar asset shows they’re distressed?
They get hunted.
If nothing else, by fear. The same type of fear that incited the bank run with FTX.
Everyone wants to beat them to it.
Nobody wants to be their exit liquidity.
When it sets in, it sets in fast.
One thing is important to clear up now:
Strategy’s debt is unsecured and the Bitcoin unencumbered, so no one can force a sale if we see a swift crash. But in order to try and save the flywheel, MSTR might have no other choice.
But who cares if there’s a high yield dividend and $100 preferred liquidation price for STRC if you don’t believe you’ll ever be able to realize it?
Who wants to hold MSTR if the only way to fund the payments and pay the debt is extreme dilution - which ironically is made worse by the very instrument that was supposed to prevent it.
Who wants to refinance the debt of a company who has multiple instruments failing?
Who wants to hold Bitcoin when that same distressed company holds 4% of the total supply until they figure their mess out?
The obvious difference between Saylor and SBF is that what Saylor is doing is completely legal.
SBF was diversified in illiquid bets that would have turned out well, but he did it with other people’s money when he didn’t have the right to do so. He also had a business that made billions of dollars in revenue annually.
Saylor is pressing the buy button on one asset with other people’s money, but he has the right to do so. And he doesn’t make any real revenue doing so.
But the difference in privilege doesn’t mean the position is any different.
It doesn’t mean the greed that drove the fragility in the system won’t be just as if not more destructive by the time it fully collapses.
And it’s difficult to see any way out of it without praying the price of Bitcoin skyrockets saving the premium and allowing them to keep the flywheel going… growing it larger and even messier if the same situation ever happens again.
So ask yourself this question and frame it with the SBF / FTX investment perspective in mind:
Is it cleaner if the mess is resolved sooner - or later when the footprint and fallout could be even larger?
As bullish as I am on Bitcoin, I’d rather deal with the pain now.
