The "Financial Alchemy" of Strategy is sweeping the globe. Who will be the final winner?

As the premium paid by investors for Bitcoin through Strategy continues to shrink due to the emergence of alternatives, companies with strong business fundamentals and low leverage may withstand this shift.

Written by: Saurabh Deshpande

Compiled by: AididiaoJP, Foresight News

We all know that Newton is famous for discovering the law of universal gravitation, but the laws of physics actually overshadow his contributions to the financial field. Newton attempted to turn lead into gold through financial alchemy, but the results were unsatisfactory, which became a catalyst for him to start studying theology in his later years. We may not have noticed that modern finance is another form of alchemy; we live in an era where financial engineering can turn lead into gold.

In this article, Saurabh unpacks down how businesses can add cryptocurrency to their balance sheets and put their real value at a premium. Strategy had just over $100 million in quarterly revenue, but held nearly $109 billion in Bitcoin. Currently, 80 companies around the world are exploring how to add cryptocurrencies to their balance sheets. Traditional financial institutions are constantly buying cryptocurrencies, which also pays a considerable premium for the volatility and potential earnings of this stock.

Saurabh discussed the emergence of convertible bonds, which have created a prosperous ecosystem. He also explored the risks faced by companies attempting to add altcoins to their balance sheets.

A software business with quarterly revenue of only $111 million has a market capitalization as high as $109 billion. How is this achieved? It turns out that it uses other people's money to purchase Bitcoin, and now the market has valued its holdings of Bitcoin at a premium of 73%. What secrets are hidden behind this financial alchemy?

Strategy (formerly known as MicroStrategy) has created a financial mechanism that allows it to borrow funds to purchase Bitcoin at almost zero cost. For example, with its $3 billion convertible bonds issued in November 2024, the mechanics work as follows. The convertible bonds issued by the company have an interest rate of 0%, meaning that bondholders will not receive regular payments. Every $1,000 of bonds can be converted into 1.4872 shares of Strategy stock. However, the prerequisite for conversion is that the stock price must rise to $672.40 or higher before maturity.

When they issued these bonds, the stock price was $433.80, so it needs to rise by 55% to achieve profitability for the convertible bonds. If the stock price does not reach that level, bondholders can only recover $1,000 within five years. However, if Strategy's stock price soars (as it usually does when Bitcoin rises), bondholders can convert them into shares, thus capturing all the gains.

The ingenuity of this financial mechanism is that bondholders are actually betting on Bitcoin's performance while enjoying principal protection when Bitcoin falls. If Bitcoin crashes, they can still get their money back because bonds take precedence over stocks in the event of bankruptcy. At the same time, Strategy can borrow $3 billion with zero interest and immediately use that money to buy more Bitcoin.

But the key trigger is that if the share price of these bonds is above $874.12 (130% of the conversion price) over the stipulated period, Strategy can force early redemption from December 2026 (just two years after issuance). This "call clause" means that if Bitcoin pushes the stock price high enough, Strategy can force bondholders to convert to shares or withdraw their funds early. This allows the company to refinance on more favorable terms.

This strategy works because Bitcoin has grown at an annual rate of about 85% over the past 13 years and is still growing at a whopping 58% annually over the past five years. The company is betting that Bitcoin will grow at a rate far greater than the 55% share price increase required to trigger a bond conversion, and they have proven the effectiveness of this strategy by redeeming early bond offerings and saving millions of dollars in interest expenses.

The core of this structure consists of three different types of perpetual preferred shares: STRF, STRK, and STRD, each tailored to different investor scenarios.

• STRF: Permanent preferred shares with a cumulative dividend of 10%, and the highest level of preferred shares. If the Strategy fails to pay dividends, all unpaid STRF dividends must be paid before paying dividends to other shareholders, and the dividend rate will also be increased as a penalty.
• STRK: Permanent preferred stock, with an accumulated dividend of 8%, and a medium priority level for preferred stock. Unpaid dividends will accumulate, and common stock shareholders must pay in full before receiving any benefits. Additionally, it includes the conversion rights to common stock.
• STRD: Perpetual preferred stock with a dividend of 10%, non-cumulative dividends, and the lowest priority. A higher dividend rate can compensate for the increased risk—if the strategy fund skips a payment, these dividends will be lost forever, with no need for future compensation.

Permanent preferred shares allow the Strategy to raise capital through equity and pay dividends similar to bonds indefinitely, with each series customized according to different investor risk preferences. The cumulative feature protects STRF and STRK holders by ensuring all dividends are eventually paid; whereas STRD offers higher current yields but does not provide a safeguard mechanism for unpaid dividends.

Strategy's performance

MicroStrategy has been financing the purchase of Bitcoin since August 2020. Meanwhile, the price of Bitcoin soared from $11,500 to $108,000, an increase of about 9 times. The stock price of MicroStrategy rose from $13 to $370, an increase of over 30 times.

However, MicroStrategy's regular business has not seen any growth. Their quarterly revenue remains between 100 million to 135 million dollars, consistent with the past. The only change is that they borrowed money to buy Bitcoin. They hold 582,000 Bitcoins, worth approximately 63 billion dollars. Their stock market value is about 109 billion dollars, which is 73% higher than the actual value of their Bitcoins. Investors are willing to pay an additional premium just to indirectly hold Bitcoin through MicroStrategy's stock.

Source — bitcointreasuries.net

As previously mentioned, MicroStrategy financed its Bitcoin purchases by issuing new shares. Since they began buying Bitcoin, the company's number of shares has nearly tripled, increasing from 95.8 million shares to 279.5 million shares.

Under normal circumstances, issuing such a large number of new shares would harm the interests of existing shareholders, as everyone's stake in the company would be diluted. However, despite the number of shares increasing by 191%, the stock price skyrocketed by 2,900%. This means that although the proportion of the company held by shareholders has decreased, the value per share has significantly increased, and overall they are still profiting.

The success of Strategy quickly became popular

Many companies are starting to try to replicate the success of Strategy by purchasing Bitcoin and treating it as a company asset. The most recent case is Twenty One (XXI). This is a special purpose acquisition company led by Jack Mallers (SPAC), and it has the support of Cantor Fitzgerald, Tether, and SoftBank, backed by Brandon Lutnick (the son of the U.S. Secretary of Commerce). Unlike Strategy, Twenty One is not publicly traded. The only way to participate publicly is through Canter Equity Partners (CEP), which injected $100 million in seed capital into XXI and acquired a 2.7% stake.

Twenty One owns 37,230 BTC. Since CEP holds a 2.7% stake in Twenty One, they actually control about 1,005 BTC (worth about $108.5 million at $108,000 per BTC).

The market capitalization of CEP is 486 million USD, which is 4.8 times the actual value of its held Bitcoin! After announcing its linkage to Bitcoin, its stock price surged from around 10 USD to about 60 USD.

This enormous premium means that investors are paying $433 million for an asset exposure worth $92 million in Bitcoin. As more similar companies emerge and the amount of Bitcoin they hold increases, the market will eventually pull these premiums back to a more reasonable level, although no one knows when this will happen, nor what the "reasonable" value actually is.

The question is, why are these companies trading at a premium? Why not go to the market and buy BTC to gain asset exposure? I think the answer lies in option equity. Who is funding Strategy's BTC buys? Mainly those hedge funds that trade bonds in pursuit of a Delta neutral strategy. This strategy is similar to Greyscale's closed-end Bitcoin Trust, which trades at a higher price than BTC. As a result, investors deposit Bitcoin into Greyscale and sell publicly traded GBTC shares. By the same logic, investors who hold Strategy bonds can enjoy a compound annual growth rate of more than 9%.

But how big is the risk? Strategy needs to pay a total of $34 million in interest per year, compared to a gross profit of $334 million in fiscal 2024, indicating that Strategy is fully capable of paying its debts. To mitigate the risk of falling prices, Strategy issued convertible bonds linked to Bitcoin's four-year cycle. That is, as long as Bitcoin rises by more than 30% in four years, the newly issued shares can easily pay the redemption fee.

In redeeming these convertible bonds, Strategy can issue new shares directly to the bondholders. Bondholders will receive a yield based on the reference stock price at the time of issuance, which will be about 30-50% higher than the stock price at the time of issuance. Problems only arise when the stock price is lower than the convertible bond price. In this case, Strategy must return cash, which can only be repaid by raising a new round of debt on more favorable terms, or by selling bitcoin to raise cash.

Strategy The Value to the Ecosystem

The beginning of all this was when traditional financial companies started buying Bitcoin. After that, they would also use exchanges and custody services. For example, Strategy is a client of Coinbase Prime. It uses Coinbase to purchase Bitcoin and stores Bitcoin using Coinbase Custody, Fidelity, and its own multisig wallet. The exact amount that Coinbase earns from Strategy's Bitcoin purchases and storage services is difficult to determine, but we can make a bold guess.

Assuming Coinbase executes BTC over-the-counter trades on behalf of Strategy, charging a fee of 5 basis points, purchasing 500,000 BTC at an average execution price of $70,000, they could profit $17.5 million from this. BTC custodians charge an annual fee of 0.2% to 1%. Assuming the minimum fee standard, storing 100,000 BTC at a price of $108,000, the custodian could earn $21.6 million annually by holding BTC for Strategy.

Besides BTC, there are ETH and SOL

BTC's success in traditional capital markets has led institutions to turn their attention to other cryptocurrencies. In May 2025, SharpLink raised $425 million through a private equity investment (PIPE) led by ConsenSys founder Joe Lubin, who also serves as executive chairman. With an issue price of $6.15 per share, the round will issue approximately 69 million new shares, and the proceeds will be used to purchase approximately 120,000 ETH with the possibility of staking, which is not currently allowed for ETH ETFs.

Staking ETH can provide a yield of 3-5%, which is naturally more attractive than ETH ETF. Before the issuance announcement, SharpLink's trading price was $3.99 per share, with a market capitalization of about $2.8 million and approximately 699,000 shares circulating. The issuance price was a premium of 54% over the market price. After the announcement, the stock soared to a high of $124.

You may not have noticed that the newly issued 69 million shares are about 100 times the current number of outstanding shares.

Upexi plans to buy more than 1 million SOL by Q4 2025 while maintaining sufficient cash flow. In a private round led by GSR, Upexi raised $100 million through the sale of 43.8 million shares. Upexi expects to utilize 6-8% staking yield and MEV rebates to pay preferred stock dividends and raise funds again to purchase SOL. On the day of the announcement, Upexi shares soared from $2.28 to $22 and closed at around $10.

Before this round of private financing, Upexi had 37.2 million shares outstanding, and the dilution rate for original shareholders from the new share issuance is approximately 54%. However, the stock price has risen by about 400%, which is enough to compensate for the losses incurred by the dilution of original shareholders' equity.

Sol Strategies is another company that raised capital from the capital markets to buy SOL. The company operates Solana validators, and more than 90% of its revenue comes from staking rewards. While Sol Strategies has staked 390,000 SOL, about 3.16 million SOL has been staked by third-party delegated nodes. In April 2025, Sol Strategies raised up to $500 million through a convertible note agreement with ATW Partners. 122,524 SOLs have been purchased for $20 million.

Recently, Sol Strategies submitted a prospectus, planning to raise 1 billion dollars through flexible means such as common stock (including "market offerings"), warrants, subscription receipts, debt securities, or any combination thereof.

Unlike Strategy's convertible bonds, both SparkLink and Upexi raise capital through a pre-issuance of new shares. Strategy's model is more suitable for different groups of investors. Compared to buying ETH and SOL outright, investors who gain exposure by buying shares take on additional risks, such as the possibility that the company may leverage its capital beyond the investor's risk tolerance. Unless there is added value in this indirect purchase, it makes more sense to use convertible bonds for financing.

When the Music Stops

These convertible bonds are primarily targeted at hedge funds and institutional bond traders seeking asymmetric risk-return opportunities, rather than retail investors or traditional equity funds.

From their point of view, these financial instruments offer the option of "making a lot of money if you win, losing a lot" and fits well with the risk management framework. If Bitcoin achieves the expected 30%-50% increase in two to three years, they have the option to convert bonds; If the market doesn't perform well, they can still get 100% of their principal back, and at most they will only bear part of the value lost due to inflation.

The advantage of this structure is that it addresses the practical concerns of institutional investors. Many hedge funds and pension funds lack the means to directly hold cryptocurrencies, or are unable to purchase Bitcoin due to investment restrictions. These convertible bonds provide them with a compliant "backdoor" into the crypto market while enjoying the rights of fixed-income assets.

However, this advantage is destined to be temporary. As regulation becomes clearer and more direct crypto investment tools (such as custody solutions, regulated exchanges, and clearer accounting standards) emerge, the demand for these indirect purchasing methods will gradually decrease. The 73% premium that investors currently pay to gain Bitcoin exposure through MicroStrategy may shrink with the emergence of alternatives.

The example was right in front of us. In the past, speculators took advantage of the premium of the Grayscale Bitcoin Trust (GBTC) by purchasing Bitcoin and depositing it into Grayscale's trust, then selling GBTC shares on the secondary market at a premium of 20%-50% above the net asset value (NAV). As more and more people began to follow suit, by the end of 2022, the premium of GBTC turned into a record discount of 50% from its peak. This indicates that without sustainable income to support repeated financing, the financial alchemy backed by cryptocurrencies will ultimately disappear due to market arbitrage.

The key question now is how long this situation can last and who will survive when the premium collapses. Companies with strong business fundamentals and low leverage may withstand this transition, while those lacking sustainable revenue sources or competitive moats, and merely chasing cryptocurrency assets, could see their stocks plummet when the hype fades.

The music was still playing and everyone was dancing. Institutional capital is pouring in, premiums are widening, and more and more companies are announcing strategies for Bitcoin and crypto assets. However, smart investors know that this is a trade, not a long-term investment logic. The companies that will survive will be those that use this window to create value beyond cryptocurrency.

The transformation of corporate financial management may continue, but the supernormal premium we see today does not. Are you ready to profit from this trend, or are you just another player hoping to find a seat when the music stops?