Black Friday sees the cryptocurrency market continue to plummet. Will MicroStrategy, the largest holder of Bitcoin, face issues?

Source: Talking about Li and Talking about the Outside

After several consecutive days of sharp declines, today (February 28) we finally see Bitcoin starting with 7 again. I wonder how everyone's mood is holding up after experiencing the blow of another Black Friday?

Let’s briefly recall the recent Black Fridays; perhaps we’ve gotten used to it after going through so many:

On Friday, January 17, the TRUMP token was officially launched, starting to deplete market liquidity.

On Friday, January 24, the global AI stock crash triggered by Deepseek caused a significant correction in the crypto market.

On Friday, January 31, Trump's tariff policy led to further turbulence in the financial markets, and in the following days, ETH entered a massive liquidation crash.

On Friday, February 14, the Argentine president released the LIBRA token, further triggering a liquidity crisis in the crypto circle.

On Friday, February 21, a new black swan event occurred when BYBit was hacked, resulting in the theft of assets worth $1.5 billion.

On Friday, February 28, Trump's tariff policy escalated, Bitcoin fell below $80,000, and altcoins were further bloodied.

Yesterday, I saw partners in the group discussing Strategy (MicroStrategy), and coincidentally, I also saw a message from a partner inquiring about Strategy this morning. It seems that every time the market crashes, some partners are particularly concerned about whether such large institutions will face liquidation.

So in the following discussion, let’s continue to talk about Strategy.

In fact, we have already provided some dedicated introductions and summaries regarding Strategy in previous articles, such as the recent two articles from February 10 this year and November 28 last year (2024). Interested partners can search for and review the corresponding historical articles.

As of the writing of this article, Strategy holds a total of 499,096 Bitcoins, with an average purchase cost of $66,380.42, making it the institution with the largest Bitcoin holdings. As shown in the figure below.

Strategy has been buying Bitcoin since September 2020, and the total value of the Bitcoins held is $40.78 billion, with a total DCA investment cost of $33.11 billion, resulting in a P/L of $7.648 billion and an overall return rate of 23.08%. However, due to the recent price fluctuations of Bitcoin, if we only look at their Bitcoin holdings in recent months, they are also at a floating loss, as shown in the figure below.

Next, let’s compare the stock performance of MSTR. In fact, the stock performance of Strategy is basically tied to the sentiment of the crypto market. For example, since entering February, MSTR has also shown a significant downward trend, with a decline of 31%, as shown in the figure below.

At this point, some partners may be curious: since BTC's price is continuously plummeting and MSTR's price is also continuously declining, will Strategy face problems if the market continues to develop this way?

In previous related topic articles, we have introduced that the funds used by Strategy to purchase Bitcoin are mainly raised through bond issuance (convertible bonds), and of course, it also includes some idle company funds and funds from stock issuance.

Even from the current perspective, Strategy's approach is a very bold innovative attempt and a genius design. The general historical background is that due to the outbreak of the COVID-19 pandemic in 2020, a global liquidity crisis occurred, and countries began to stimulate the economy through monetary easing policies. At the same time, large-scale monetary expansion led to the depreciation of fiat currencies and inflation risks. At that time, Michael Saylor (the founder of Strategy) began to reassess the value of Bitcoin. He believed that if the global supply of fiat currency grew at a rate of 15% per year, people would need an asset that is not directly linked to fiat cash flow. Ultimately, under Michael Saylor's leadership, Strategy began to transform (from a software company to a financial company) and prioritized Bitcoin as an asset on the institutional balance sheet, choosing to embrace a Bitcoin strategy and starting a buying spree.

The core of this Bitcoin strategy is that Strategy itself can capture the potential benefits of Bitcoin's long-term upward trend, while also bearing the potential risks of Bitcoin's short-term decline.

However, for Strategy, what they need to do is quite simple: continue to buy Bitcoin, and how much they can buy in the future mainly depends on their ability to raise external funds. In other words, if one day their debt exceeds the company's asset size, the possibility of continuing to refinance will significantly decrease. In other words, Strategy's next steps are more determined by external factors, and they themselves should not waver in their "determination" to continue buying Bitcoin long-term. We can also understand Strategy's approach as a form of "smart leverage," and this strategy does not seem to directly lead to a situation of "forced liquidation." In simple terms, the risk of Strategy facing direct liquidation is currently not high.

However, there is a situation that may put some pressure on Strategy, such as if Strategy continues to buy Bitcoin at high prices (through issuing convertible bonds), but coincidentally, Bitcoin begins to enter a bear market. When the price of Bitcoin continues to plummet, causing the total value of Bitcoin held by Strategy to fall below the total amount of its convertible bonds, this may further lead to a decline in MSTR, making it difficult for Strategy to continue raising external funds through issuing convertible bonds, thus putting some pressure on Strategy.

To summarize, the conditions that need to be met to put pressure on Strategy are: continuing to issue bonds to buy Bitcoin at high prices (continuously raising the purchase cost), Bitcoin being in a long-term bear market (leading to financing difficulties due to insufficient liquidity), Bitcoin's price starting to plummet, the total value of Bitcoin holdings falling below its debt size, and MSTR lacking liquidity and starting to plummet (which will also lead to difficulties in new financing).

If the pressure is significant enough, then theoretically, Strategy would have several response options:

First, continue to issue new shares, obtain funds, and repay debts.

Second, continue to issue new bonds and use new bonds to repay old debts.

Third, directly sell a portion of Bitcoin to obtain funds for repayment.

So, will this pressure occur? How much pressure will it cause? Let’s continue to look at some data:

1. Comparison of MSTR's Market Value and the Value of Held BTC

As of the writing of this article, MSTR's market value is $605.77, while the total value of Bitcoin held by Strategy is $40.78 billion.

In simple terms, as long as MSTR's market value is greater than the total value of its held Bitcoin, it means there is a market value premium (the current premium rate is 48.55%), which means Strategy can still buy more BTC by diluting MSTR's equity, and at the same time, it can further increase the "Bitcoin content" per share of MSTR.

The increase in "Bitcoin content" means that the net asset value per share of MSTR is actually growing. Thus, for shareholders (investors), it remains a worthwhile (profitable) endeavor for Strategy to continue buying more Bitcoin.

2. Comparison of Strategy's Debt Size and the Value of Held BTC

Strategy's current debt size is approximately $8.2 billion, and this debt is supported by Bitcoin valued at $40.7 billion. In simple terms, their current leverage ratio is only about 20%, and this holding size currently appears to be very healthy. As shown in the figure below.

Moreover, these debts are mainly the convertible bond notes mentioned earlier, and most of the notes will not mature until after 2027. Therefore, from the current perspective, Strategy does not seem to have any repayment pressure.

3. Strategy's Founder Michael Saylor

Saylor has now become a very staunch supporter of BTC. He has previously made some seemingly exaggerated statements through social networks, such as:

"Even if BTC drops to $1, Strategy will not be liquidated; on the contrary, we will buy all the Bitcoin."

"If necessary, I suggest selling a kidney, but keep the Bitcoin." (Meaning that selling a kidney is not as important as keeping Bitcoin, haha)

He even hinted in an interview that he would destroy his Bitcoin private keys after his death to ensure that the Bitcoin he holds would never be sold.

Regardless of whether this capitalist's statements are true or not, he is indeed taking real actions (with real money) to buy Bitcoin, making him a typical representative and model figure for dollar-cost averaging Bitcoin.

Of course, Saylor has the confidence to say this because he currently holds 46.8% of the voting rights in Strategy (holding 10% of the company's shares), which means he almost completely controls the decision-making power of MSTR. Additionally, it is said that he personally holds Bitcoin worth about $1.9 billion.

In summary, even though Bitcoin has recently faced consecutive price declines, it does not seem to put too much pressure on Strategy. Therefore, the recent rumors that Strategy will face a crisis are even more absurd.

Of course, what will happen in the future is unpredictable. We do not know if there will be any larger-scale black swan events occurring next. However, if no larger-scale black swan events occur (such as Strategy facing bankruptcy due to other issues, or policy factors affecting it, or changes in the global macro economy), at least we believe that the risks of Strategy's approach before 2028 are minimal. By 2028, as some debts mature, bondholders may demand cash repayment (rather than stock). If that coincides with the situations mentioned in the summary paragraph above, then Strategy may be forced to sell some Bitcoin for repayment, which would truly deal a heavier blow to the crypto market and add fuel to the fire, potentially triggering some chain risks.

Many people know that dollar-cost averaging Bitcoin is a good investment strategy, but even if we set aside the amount of funds, in terms of personal style and courage, most of those who claim to be staunch believers in Bitcoin can only be considered juniors in front of Michael Saylor.

In fact, encountering sharp declines like those in recent days is not scary; for some, it is rather a new accumulation opportunity. Just as partners in the group shared: no one can accurately catch the bottom; what we can do is to act against human nature during the panic of repeated crashes. Similarly, no one can sell at the exact top; what we can do is to continue to act against human nature during the frenzy of repeated surges.

As for the future market trends, even though we remain somewhat optimistic (referring to previous series of articles, optimism does not mean that there won't be new black swan events this year, nor does it mean that Bitcoin will 100% reach new highs; it is merely a reflection of our overall position status), many partners may have already fallen into pessimism about the bear market. In any case, continue to manage your positions based on your personal risk tolerance. It might be better to simply forget about bull or bear markets and focus on the probabilities of price movements in different stages of the market. Last year's crypto market was a positive variable due to Trump, and now it has become a negative variable because of Trump. Isn't that interesting? In fact, the development of the market itself is a continuous unpredictability. Good luck to everyone!