Arca CIO Calls Strategy's Preferred Stock Situation 'Out of Hand'

Strategy is facing renewed scrutiny over its preferred stock financing model as Arca chief investment officer Jeff Dorman warned the situation has “gotten out of hand” due to roughly $15 billion in preferred stocks carrying about $1.5 billion in annual dividend obligations [1]. Dorman argues the structure relies on Bitcoin prices rising sharply enough to fund these commitments, leaving the company with difficult choices if market conditions remain volatile [1].

Key takeaways

• Arca CIO Jeff Dorman describes Strategy’s $15 billion preferred stock burden as “out of hand” due to $1.5 billion in annual dividend obligations [1].
• Strategy recently repurchased $1.5 billion in zero-coupon bonds, leaving $871 million in cash to meet recurring dividend payments [3].
• CEO Phong Le confirmed the company may sell Bitcoin in the future, though he stated the goal is to increase Bitcoin per share [1].
• Prediction markets on Polymarket show a 90% probability Strategy will sell Bitcoin by December 31, 2026 [1].

Financing model faces volatility test

Dorman’s critique centers on Strategy’s issuance of five preferred shares—STRK, STRF, STRD, STRC and STRE—which carry fixed dividend commitments and varying levels of seniority [1]. He characterized the model as a wager that Bitcoin was “about to moon,” a bet that becomes harder to sustain with Bitcoin trading roughly 16% lower year-to-date at around $73,737 [1]. The pressure intensified after Strategy used most of its cash reserves to buy back $1.5 billion face value of zero-coupon convertible notes due 2029 for about $1.38 billion, leaving $871 million on hand to meet dividend obligations [3]. Dorman called the decision to repurchase the 2029 bonds “baffling” given the recurring dividend pressure, noting that the STRC tranche alone pays a variable dividend recently raised to 11.5% [1, 3].

Management signals potential asset sales

The warning follows comments from Strategy CEO Phong Le, who confirmed that the company might sell Bitcoin at some point in the future, a possibility previously raised by executive chairman Michael Saylor in mid-May [1]. “We'll likely sell Bitcoin at some point in time, but we will be net increasing our Bitcoin and more importantly, increasing our Bitcoin per share,” Le said in a recent interview [1]. Amid these expectations, the prediction market platform Polymarket indicates roughly a 90% chance Strategy will sell Bitcoin by December 31, 2026, with a 71% chance by June 30 of that year [1]. The company currently holds 843,738 Bitcoin, purchased at an aggregate price of $63.87 billion and an average price of approximately $75,700 per coin [1].

Why it matters

Dorman suggests the structure ultimately leaves Strategy with two stark outcomes: sell Bitcoin to pay preferred shareholders or stop paying the dividend, both of which carry “direct and asymmetric consequences” for the company and its investors [1]. He argues that three stakeholder groups now hold competing claims on the same balance sheet, predicting that someone will “lose badly” within the next four months [3]. A sale of Bitcoin to fund dividends would conflict with the long-term thesis held by leadership, while cutting payouts would punish preferred holders [3].