Benchmark defends Strategy’s equity sales for bitcoin accumulation, sees S&P 500 potential
Bitcoin treasury company Strategy came under fire recently for quickly dismissing its self-imposed constraint on issuing common equity shares to accumulate more BTC. The company's stock dropped more than 20% over the past few weeks before recovering in recent sessions.Indeed, earlier Monday, Strategy (ticker MSTR) purchased another 4,048 bitcoin, bringing its total holdings to 636,505 BTC. The latest acquisitions were funded by proceeds from the issuance and sale of the company's Class A common stock, MSTR, and perpetual preferred stocks (STRK, STRF, and STRD)."Recent griping by retail investors on social media that Strategy and executive chairman Michael Saylor mismanaged the capital-markets side of the company’s bitcoin accumulation strategy...gets the causality backwards," Benchmark analysts led by Mark Palmer wrote in a note to clients. "We believe the pressure on MSTR’s share price in recent weeks stemmed from a compressing market premium to its underlying bitcoin holdings and a choppy macro/crypto tape."In July, Strategy told investors it would use its common-stock ATM (MSTR) to buy bitcoin only when its mNAV was at least 2.5x, a constraint intended to prevent it from issuing equity when the stock traded too close to the value of its underlying bitcoin. Over the next few weeks, the company’s mNAV slid toward its current level of 1.59x, Benchmark analysts noted, and the market extrapolated "slower bitcoin buys," squeezing the premium further, and its share price lagged spot bitcoin."We believe that chain reaction – premium compression begetting more compression – was the proximate cause of MSTR’s relative underperformance," Palmer wrote in the note.The company's decision to relax its self-imposed constraint on using common equity below a 2.5x mNAV threshold was a rational course-correction that restored flexibility, according to Palmer, which was consistent with past practice and ultimately improved its ability to accumulate more bitcoin over time."The upshot is that we continue to view MSTR as the cleanest and most liquid way to own the upside in bitcoin without taking mining-execution risk," the Benchmark analysts said.They also believe Strategy's stock has emerged as one of the most-watched candidates for potential inclusion in the S&P 500 this coming Friday, when the index’s September rebalance is expected to be announced. The firm meets all criteria needed, but its bitcoin holdings could scare off the index committee."With both Coinbase and Block having recently been added, the committee will weigh whether additional crypto-linked representation in the S&P 500 is desirable at this stage," Palmer wrote in the note. "While MSTR meets the S&P 500's positive earnings requirements, the source of those earnings is often unrealized gains from bitcoin mark-to-market accounting, rather than recurring operating profit. As such, the committee could consider such earnings too volatile and not reflective of sustainable corporate performance."The firm maintained a "buy" rating for MSTR with a price target of $705. Shares traded higher by nearly 3% to $341 in today's session.Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.© 2025 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.