The Dividend Trap: How Bitcoin Treasuries' Preferred Equity Could Trigger Forced Selling

Hello and welcome to Bitcoin Balance Sheet, the twice weekly email from Bitcoin Treasuries, where we track the latest in corporate Bitcoin buying.

This edition is brought to you by XCE – a next-generation BTC treasury.

Turning Executive Talent Into Bitcoin Treasury – XCE

Connecting Excellence Group Plc (“XCE”) is preparing to list on the Aquis Stock Exchange Growth Market in London, giving UK investors direct equity exposure to a profitable executive recruitment business running a Bitcoin treasury strategy.

With a decade of executive search experience and four years of Bitcoin accumulation behind it, XCE is now one of the UK’s first specialist corporate Bitcoin treasuries, pairing cash‑generative headhunting with disciplined BTC reserves.

Why it matters:

BTCT 2.0 model: XCE combines a proven operating business with a Bitcoin treasury, using a global platform, human capital, recurring revenues, and performance‑linked equity incentives to grow cash flows and systematically convert surplus into BTC.

Recruitment engine: Through its flagship firm Spencer Riley, XCE works with globally recognizable brands across engineering, logistics, life sciences, technology, and professional services, placing senior talent and building diversified income.

Specialist governance: XCE is led by an experienced leadership team and a specialist board and advisory group with deep Bitcoin and capital‑markets experience, focused on structuring the treasury and governance to benefit long‑term shareholders.

Connecting Excellence Group is designed as a Bitcoin‑powered growth engine: a profitable, cash‑generative recruitment platform that uses cycles to accumulate more BTC while serving global clients.

The WRAP retail offer is now live for eligible UK investors.

The Dividend Trap

Bitcoin treasury companies have engineered an elegant capital structure that works handsomely during bull markets but could unwind catastrophically during bear markets.

How? Dividend payments. Strategy pays 4.9% to 12% annual dividends on billions in preferred equity, while Metaplanet pays 4.9% on its Mercury preferreds and Strive pays 12% on SATA.

These obligations compound to tens of millions in quarterly dividend payments that remain sustainable when Bitcoin appreciates 50% annually — but has the potential of becoming an existential threat when prices stagnate or decline.

Underneath, the mathematics reveal a structural vulnerability. Treasuries must either maintain substantial cash reserves — like Strategy's $1.4 billion war chest — continuously raise new capital, or, god forbid, sell Bitcoin at precisely the moments they should be holding.

Strategy's recent announcement of a $1.4 billion cash reserve illustrates the pressure. The company holds approximately $21 billion in preferred equity across five tranches — STRC, STRF, STRK, STRD, STRE — paying variable rates between 8% and 12%.

Assuming a blended 9% average yield across the preferred equity portfolio, Strategy owes roughly $1.89 billion annually in dividend obligations, or $472 million per quarter. The $1.4 billion reserve covers exactly three quarters of preferred dividend payments before depleting entirely, explaining why management specified it provides "at least 21 months" of coverage when including interest on convertible notes.

o21 Solutions

o21 develops and implements Bitcoin-powered corporate strategy, transforming value chains with strategic expertise and tailored advisory services, with a focus on both Treasury and Operations - balance sheet accumulation, mining, and payments. Reduce cycle time through the corporate Bitcoin adoption journey through our pre-packaged or tailored engagements.

For more information:

If Bitcoin starts to drop, however, the math becomes a bit uncomfortable.

When Bitcoin traded at $108,000 in early November, Strategy's 650,000 BTC generated $70.2 billion in nominal treasury value. At current $92,000 prices, that same treasury is worth $59.8 billion — a $10.4 billion decline in just weeks. The preferred equity obligations didn't decline proportionally, because Strategy still owes $472 million quarterly regardless of Bitcoin's price.

If Bitcoin remains at $92,000 for 12 months while Strategy makes no new purchases, the company must deploy $1.89 billion servicing preferred dividends — equivalent to selling 20,543 BTC, or 3.2% of total holdings, simply to meet fixed obligations.

Metaplanet's Mercury preferred equity demonstrates the same structural challenge at a smaller scale. The company issued approximately $150 million in Mercury perpetual preferreds paying 4.9% annual dividends, creating $7.35 million in yearly obligations. 

With 30,823 BTC currently worth about $2.84 billion, the dividend represents just 0.26% of treasury value. But Metaplanet holds Bitcoin at an average cost basis of around $108,000, which translates to a -14.8% unrealized losses. If the company generates insufficient operational cash flow and cannot access capital markets for new raises, the only source of dividend funding becomes selling Bitcoin at a loss. 

The 4.9% dividend, marketed as “cheaper than Strategy’s 10% to 12%,” becomes much more expensive if it forces liquidation at $92,000 when the purchase price was $108,000.

Strive’s SATA preferred at 12% creates even tighter constraints. The company raised $160 million through SATA’s November IPO, creating $19.2 million in annual dividend obligations against 7,525 BTC holdings worth around $692 million at current prices. 

The 12% yield that attracted investors during the offering now consumes 2.8% of treasury value annually — nearly triple Metaplanet’s burden. If Strive cannot raise additional capital and Bitcoin remains suppressed, the company must sell 209 BTC annually (2.8% of holdings) just to service SATA dividends, destroying the compounding effect treasuries usually promise their shareholders.

During extended drawdowns, the structural vulnerability compounds. Consider a scenario where Bitcoin trades between $85,000-$95,000 for 18 months while capital markets remain closed to new treasury issuance. 

Strategy would owe approximately $2.8 billion in cumulative preferred dividends over that period. Without operational cash flow (the software business generates minimal revenue relative to treasury obligations) or new capital raises, the company faces three options: (1) defer dividends and trigger penalty provisions including potential board seats for preferred holders, (2) sell Bitcoin at depressed prices to fund payments, or (3) raise new preferred equity at even higher yields, increasing future obligations. 

None of these options preserve the treasury strategy’s fundamental promise of holding Bitcoin through cycles without forced selling.

The feedback loop creates additional pressure. As preferred dividends consume larger percentages of treasury value during flat or declining Bitcoin prices, common equity holders see their per-share Bitcoin exposure erode. 

Strategy’s mNAV compressed to 0.87x partly because markets recognize this dilution risk — every dollar paid in preferred dividends either comes from selling Bitcoin (reducing holdings per share) or issuing new equity (increasing shares outstanding). The lower MSTR stock trades, the more dilutive new equity raises become, accelerating the per-share Bitcoin erosion that initially caused the stock decline.

Treasuries built with substantial cash reserves gain survival advantages. Strategy’s $1.4 billion buffer provides 21 months of breathing room, allowing the company to wait out volatility rather than sell Bitcoin during temporary drawdowns. 

But treasuries without reserves face immediate pressure. If Metaplanet or Strive cannot access capital markets during the next Bitcoin winter, their preferred dividends become forced liquidation triggers. The companies that marketed preferred equity as a “non-dilutive” alternative to common stock issuance might soon discover that fixed obligations during variable revenue creates the same dilution through Bitcoin sales instead of share issuance.

The irony is profound. Preferred equity was supposed to solve Bitcoin treasury funding challenges by accessing fixed-income investors who cannot buy common stock. 

Instead, it created fixed obligations that work perfectly during Bitcoin appreciation but potentially force the exact behavior — selling during drawdowns — that destroys long-term treasury value. 

Whether this represents elegant financial engineering or structural time bomb depends entirely on one variable: does Bitcoin go up? If yes, preferred dividends remain noise. If Bitcoin stagnates at $85,000 to $95,000 for 24 to 36 months, treasuries with large preferred equity bases face mathematics that eventually require selling the asset they promised to hold forever.

Special thanks to our partners:

• AnchorWatch. AnchorWatch makes Bitcoin ownership safer and easier by combining advanced custody expertise with industry-grade insurance. As a Lloyd’s of London Coverholder, it writers specialized policies that address digital-asset risks, giving clients trusted coverage and peace of mind. Learn more: AnchorWatch

• Arch Lending. Get instant, secure loans backed by your Bitcoin, Ethereum, or Solana—no need to sell your assets. Arch Lending offers fast approvals and trusted custody for both individuals and institutions. Learn more: Arch Lending

• Cadena Bitcoin. A p2p bitcoin lending marketplace with a unique emphasis on working with treasury firms and businesses, as well as the savvy bitcoin-native investors who visit our website. Learn more: Cadena Bitcoin

• Coinkite. Coinkite is a leader in security and hardware manufacturer and the maker of some of the most iconic Bitcoin products, such as OPENDIME, COLDCARD, BLOCKCLOCK, SATSCARD, TAPSIGNER and SATSCHIP. Learn more: Coinkite

• Cryptio. Cryptio is an enterprise-grade accounting software platform built specifically for digital assets and cryptocurrencies. It enables businesses to transform blockchain transaction data from multiple exchanges and custodians into auditable financial records, supporting compliance with GAAP and IFRS standards. Learn more: Cryptio

• The Hemisphere Foundation. Hemisphere develops open-source solutions designed to help treasury teams securely manage, deploy, and optimize their BTC holdings, withe benefits of self-custody and Bitcoin native deployment. Learn more: The Hemisphere Foundation

• Orange Wheel Advisors. Orange Wheel Advisors is a strategic consulting firm that helps companies navigate Bitcoin’s impact on corporate finance and competitive strategy. With expertise spanning treasury management, payments, capital structure, mining, and investor communications, they provide executive education, tailored strategies, and execution support to guide businesses through the global monetary transition. Learn more: Orange Wheel Advisors

• o21 Solutions. o21 develops and implements Bitcoin-powered corporate strategy, transforming value chains with strategic expertise and tailored advisory services, with a focus on both Treasury and Operations - balance sheet accumulation, mining, and payments. Reduce cycle time through the corporate Bitcoin adoption journey through our pre-packaged or tailored engagements. Learn more: o21 Solutions

• Psalion. Psalion is a Bitcoin and digital-asset yield manager that offers institutional‑style investment strategies to professional investors, family offices, corporates, and private clients via separately managed accounts and yield funds. Learn more: Psalion

• Secure Digital Markets (SDM) provides unparalleled liquidity, execution speed, and bespoke customer service, making it the top choice for institutional investors seeking reliable digital asset trading solutions. With deep expertise in capital markets and strict regulatory standards, SDM stands out as the premier platform for all digital asset treasury teams looking to optimize their trading and treasury operations. Learn more: Secure Digital Markets (SDM)

• Stacking Sats Inc. Official IT partner at BitcoinTreasuries, Stacking Sats Inc via its subsidiary, Framework IT, is a managed IT services firm with a 17-year track record of providing bet-in-class IT support, strategy, and cybersecurity, boasting high recurring revenue and long-term client contracts. It’s also one of the top 20 holders of Bitcoin among global private companies. Learn more: Stacking Sats Inc

• XCE. A executive recruitment group that combines a profitable recruitment business with a Bitcoin treasury strategy. The company turns over a decade of executive recruitment experience and four years of Bitcoin accumulation into a public Bitcoin‑powered growth engine, using a proven operating business to drive Bitcoin treasury accumulation. Learn more: XCE

• Zaprite. Zaprite is a non-custodial payment platform that allows individuals and businesses to seamlessly accept both bitcoin (on-chain and lightning) and fiat payments in a unified, customizable checkout experience. Users can easily issue invoices, generate payment links, and connect multiple wallets or custodial accounts, all while handling their own funds directly. Learn more: Zaprite

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