The Price of Bitcoin May Be Soaring, But a New Risk Has Emerged for Strategy. Here's What MSTR Investors Need to Know.

Bitcoin's (CRYPTO: BTC) price has risen more than 20% over the past month. The geopolitical conflicts and fears of the debt-driven devaluation of the U.S. dollar fueled that rally.

Shares of Strategy (NASDAQ: MSTR), which holds 4.02% of Bitcoin's total lifetime supply, have also rallied 35% over the past month. Those gains aren't surprising, since Strategy's 845,050 Bitcoins are worth $63.5 billion -- compared to its enterprise value of $50 billion.

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Investors who are bullish on Strategy believe it's undervalued relative to its Bitcoin holdings, and that its stock will eventually trade at a premium to those assets. However, the bears argue that it deserves that discount because it needs to sell its Bitcoins to fund its preferred dividends. Let's see why that's a major risk Strategy's investors can't afford to overlook.

What are Strategy's preferred shares?

Last year, Strategy issued four classes of preferred shares: "Strife" (NASDAQ: STRF), "Stretch" (NASDAQ: STRC), "Strike" (NASDAQ: STRK), and "Stride" (NASDAQ: STRD). All four stocks have different dividend structures, seniority, yields, and risk profiles.

Data source: Strategy.

Strategy issued its preferred shares to raise more cash to fund its Bitcoin purchases. However, it spent more than $500 million on dividend payments in the first half of 2026, even as Bitcoin's price declined by more than 30% from Jan. 1 to June 30. To cover its dividends without taking on more debt, Strategy sold 3,620 Bitcoins (worth $272 million today) in the first half of 2026.

Strategy's critics claim that this loop of issuing more preferred shares to buy more Bitcoin, then selling that Bitcoin to fund its preferred dividends, is reckless. As long as Bitcoin's price is rising and its preferred shares are trading at or above par, Strategy can continue issuing new shares via at-the-market (ATM) offerings to fund its Bitcoin purchases, dividends, and capex. But if Bitcoin's price plummets, Strategy won't be able to find enough buyers for its new shares. If that happens, most of its cash flow will dry up -- since its legacy software business doesn't generate nearly enough cash to cover all those expenses.

That's why Strategy's stock still trades at a discount relative to its total Bitcoin holdings, and why it fell 60% (against Bitcoin's 32% decline) over the past 12 months. So before you invest in Strategy as a Bitcoin play, you should carefully assess its preferred dividends strategy.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.