[DigitalToday reporter Yoonseo Lee (이윤서)] A report said investors judging Strategy’s investment risk should look not only at bitcoin prices or the premium to net asset value (NAV) but also at an 'amplification' metric that shows its capital structure.

CoinDesk, a blockchain media outlet, reported on April 13 that the metric compares the scale of debt-like capital such as total debt and preferred shares with the size of Strategy’s bitcoin holdings.

As amplification rises, Strategy common shares (MSTR) become more sensitive to bitcoin price swings. The structure is similar to leverage. As amplification increases, the company’s overall risk level rises and the upside and downside that common shares ultimately absorb also widen. Amplification is currently about 33 percent.

At the top of Strategy’s capital structure are about $8.25 billion in convertible notes. This is the most senior claim. Below that are preferred shares including STRC, STRK, STRD and STRF, with a face-value scale of about $10.3 billion. At the bottom is the MSTR common stock. Common shares absorb all residual gains and losses.

Markets have largely valued the company based on bitcoin prices and MSTR’s premium to NAV. The report said that if amplification rises further, the key variable explaining risk could shift to this metric. It also flagged rapid growth in STRC trading.

STRC was designed as a key tool for Strategy’s bitcoin accumulation. It ranks senior to common shares but junior to debt in the capital structure, and pays an annual dividend of 11.5 percent in monthly cash. STRC’s share of trading was once limited to the low single digits versus MSTR, but it has recently expanded to about 20 percent on a weekly basis and in some periods exceeded 25 percent.

According to figures on the MSTR dashboard, MSTR trading value last Friday was $1.7 billion, below the 30-day average of $2.5 billion. STRC trading value, however, was $526 million, about double its average of $259 million. On a daily basis, it rose to a level close to half of MSTR’s trading volume.

This shift could increase the burden of managing amplification. As STRC trading grows, the company can reduce reliance on issuing common shares, but adjusting the capital structure could become more difficult. Issuing common shares was also cited as a factor that could hurt performance versus bitcoin. A figure was presented showing MSTR fell 11 percent over the past 30 days while the bitcoin price showed little change.

When amplification is low, MSTR can move like bitcoin with leverage applied. But as amplification rises, the degree of difficulty in management also increases. An annual mandatory burden of about $1.12 billion is added on top of that. This has increased the likelihood that investment decisions on Strategy will shift toward examining not only bitcoin holdings but also how debt and preferred shares weigh on common stock.