Strategy Inc., the corporate Bitcoin vault previously known as MicroStrategy, has indicated that the factors driving its rapid expansion have encountered a cyclical barrier.
On Dec. 1, the Tysons Corner-based firm announced its focus on a $1.44 billion cash reserve, providing investors with detailed guidelines for possible asset sales. This marks a practical evolution in its treasury management, reflecting current market limitations.
This announcement coincides with its stock trading at a discount compared to the net asset value (NAV) of its Bitcoin holdings.
The action signifies a pause in the “premium-driven leverage loop,” where Strategy made use of a high equity premium to issue shares and acquire Bitcoin, thus creating added value for investors.
As of the latest update, this dynamic has notably slowed.
Strategy’s shares are trading at about 1.15 mNAV (market-to-net asset value). If this drops below 1.0 mNAV, equity issuance may become dilutive, effectively stalling the company’s primary accumulation engine.
The effects are already apparent in Strategy’s BTC ledger. From Nov. 17 to Nov. 30, the firm acquired only 130 Bitcoin for $11.7 million, a small fraction of its usual volume.
This shift effectively indicates that the company’s management is committing to a disciplined capital-allocation strategy: when the premium disappears, aggressive growth must be postponed.
A defensive cash buffer
To navigate this period of mNAV compression, Strategy has created a liquidity buffer meant to protect its balance sheet from requiring dilutive share issuance.
The centerpiece of this strategy is a $1.44 billion USD reserve, procured through at-the-market equity programs prior to the decline of the premium.
While not legally designated, these funds are effectively allocated to cover the company’s fixed-income obligations.
The reserve currently ensures about 21 months of interest payments and preferred share dividends, with management aiming for a coverage ratio of 24 months.
This distinction is vital.
Although Strategy’s legacy software business can generate enough cash flow to cover operating costs and the low-coupon interest on its convertible notes, it cannot independently manage the increasing burden of preferred dividends, estimated at $750 million to $800 million annually.
Given this context, Michael Saylor, the chairman of Strategy, stated:
“Establishing a USD Reserve to complement our BTC Reserve marks the next step in our evolution, and we believe it will better position us to navigate short-term market volatility while delivering on our vision of being the world’s leading issuer of Digital Credit.”
Strategy specifies conditions for Bitcoin sales
This changing market landscape has also led to enhanced communication.
In the Dec. 1 company update, Saylor’s long-standing “never BTC sell” message transitioned to a more structured strategy, outlining specific situations in which a BTC sale could take place.
Per the presentation, Strategy would contemplate selling Bitcoin only if the stock trades below 1x mNAV and access to capital markets for debt or equity issuance is blocked.
While the firm stressed that this is a contingency and not a strategy, the disclosure provides institutional investors with a quantifiable risk threshold.
Notably, MicroStrategy CEO Phong Le recently mentioned:
“We can sell Bitcoin, and we would sell Bitcoin if we needed to, to fund our dividend payments below 1x mNAV…as we look at Bitcoin winter and see our mNAV compressing, my hope is our mNAV doesn’t go below one. But if it did, and we did not have other access to capital, we would sell Bitcoin. But that would almost be a last resort. That would be a last resort.”
This currently positions Strategy 15% away from executing Bitcoin sales. If MSTR shares drop by 15%, while Bitcoin prices remain constant, mNAV would dip below the threshold.
Analysts argue that this transparency mitigates the theoretical “reflexivity risk,” which entails a falling Bitcoin price impacting Strategy’s stock, widening the NAV discount, and putting additional strain on the balance sheet.
By specifying the triggers, Strategy seeks to reassure the market that any sales would be a last measure, not a panic reaction.
However, CryptoQuant CEO Ki Young Ju highlighted that executing Bitcoin sales under these conditions might lead to a “death spiral.”
He stated:
“To be fair, selling Bitcoin below 1x mNAV does not sound like a good idea. It might benefit MSTR shareholders in the short term, but it would ultimately harm Bitcoin, and that would impact MSTR too, creating a death spiral.”
Revised KPI
Meanwhile, the tensions in Strategy’s current model were underscored by a significant revision to its forward guidance, where the company formally adjusted its optimistic year-end outlook.
During its company update, Strategy abandoned its previous prediction that Bitcoin would reach $150,000 by the end of 2025.
Instead, the firm recognized the leading asset’s recent drop from $111,612 to lows near $80,660. Consequently, it has recalibrated its baseline to a more conservative range of $85,000 to $110,000.
Due to this adjustment, Strategy now expects its fiscal 2025 net income to vary from a loss of $5.5 billion to a profit of $6.3 billion.
Likewise, the company outlined that its diluted earnings per share (EPS) are projected to fluctuate from negative $17.00 to positive $19.00.
Most importantly for investors is the revised “BTC Yield” target set at 22% to 26%. The report emphasizes that achieving this and the anticipated $8.4 billion to $12.8 billion in Bitcoin gains hinges on the “successful completion of capital raises.”
This caveat circles back to the NAV discount narrative. With the stock trading below its asset value, the “disciplined common stock issuances” necessary to meet these yield targets become extremely challenging to implement without diluting shareholder value.
