Strategy’s stock slide leaves bitcoin’s biggest booster with dwindling options
Michael Saylor’s financial engineering inspired dozens of imitators but is now close to unravelling
Two weeks after posting an AI-generated picture of himself fleeing a sinking ship, Michael Saylor last Monday floated a once unthinkable idea: that his company Strategy might soon sell some of its 650,000 bitcoins.
The prospect of one of bitcoin’s most outspoken evangelists offloading the tokens shows how gravely the recent digital asset slump threatens the crypto-financial machine that Saylor has built.
At the heart of his predicament is the quickly narrowing gap between Strategy’s valuation in the stock market and the value of the bitcoin on its balance sheet.
The premium which Strategy’s stock commands over its bitcoin holdings has dropped to a five-year low — its shares have fallen far faster than the cryptocurrency — and is at risk of disappearing altogether.
If the premium vanishes, Strategy’s “entire business model breaks”, said David Krause, emeritus associate professor of finance at Marquette University.
“It’s like a flywheel that only works when investors are willing to pay more than the bitcoin is worth,” Krause wrote in a recent paper. When the premium disappears, “that flywheel reverses.”
Saylor’s success in transforming a sleepy enterprise software company into a moneymaking juggernaut fuelled by bitcoin has led to a posse of imitators, turning public companies into crypto-hoarders. The crypto sell-off is now exposing their financial weakness.
While the stock traded at a large premium, Strategy sold tens of billions of dollars of convertible bonds, common stock and other equity-linked instruments to fund its bitcoin-buying spree.
Its relentless accumulation of the world’s most valuable digital asset propelled its shares 1,200 per cent higher since its first purchase in 2020.
But after peaking at a $127bn valuation in July, its share price has plunged nearly 60 per cent. That has left Strategy with an enterprise value just 1.16 times its bitcoin holdings, having been worth twice as much in June.
Saylor has acknowledged the premium’s crucial role. As long as Strategy’s enterprise value exceeds its net asset value, “the most efficient thing . . . to do is to sell the equity”, Saylor said in a presentation last week.
If the company traded at a discount, he added that “yes, we could sell the bitcoin.”
Saylor has long measured the company’s success through a metric he created, Strategy’s so-called bitcoin per share. While the premium lasts, each new share issued to fund bitcoin purchases boosts shareholders’ bitcoin per share.
That model has come under increasing strain as Strategy’s share price has slumped. The company has warned it could incur a $5.5bn net loss if bitcoin were to end the year at $85,000. The company previously forecast it would trade at $150,000 by year’s end.
Its decision to launch a huge US dollar reserve to cover its dividend payments marked another U-turn for a company whose widely imitated business model centres on bitcoin being the only form of currency worth holding.
“It’s pure comedy,” said one US hedge fund chief investment officer who had bet against Strategy earlier this year.
Investors who had bet on Strategy’s premium eventually collapsing — by going long bitcoin while shorting the company’s shares — have profited from the decline.
New York-based hedge fund Kerrisdale Capital was among the first investment groups to enter the trade, calling out Strategy’s voracious appetite for capital and what it described as the company’s “bloated” valuation in March 2024. Jim Chanos, one of Wall Street’s best-known short sellers, closed his short-Strategy, long-bitcoin trade after 11 months in November.
Strategy did not respond to a request for comment.
Saylor’s most fervent fans have dismissed suggestions that his recent pivot to amassing dollars amounted to an admission of defeat.
“Is this what he wanted to do? Absolutely not. But [the announcements] are still steps and bridges and tools to get to the end goal: to accumulate more and more bitcoin,” said Ed Juline, Strategy’s former director of bitcoin advocacy. “Saylor’s a genius and 100 per cent committed to what he’s doing.”
For the time being, the dividend and coupon payments owed on Strategy’s various debt instruments are covered for 19 months by its new $1.4bn US dollar reserve, according to Saylor.
Much depends on how the crypto market performs. Brett Knoblauch, a crypto analyst at Cantor Fitzgerald, said in a note it would “not take much for Strategy’s [premium] to revert higher, which would then spur more capital raising and bitcoin accumulation”.
“The most obvious catalyst would be for bitcoin to break out above [all-time highs] of around $125,000,” he added.
Equally, further falls in crypto or a protracted loss of its premium would leave Strategy stalled — burning cash to meet its obligations and constrained in its ability to raise new capital.
Looming over the company is MSCI’s upcoming decision on whether to exclude from its indices Strategy and other bitcoin treasury companies that resemble investment funds.
That ruling could prove “pivotal,” JPMorgan analyst Nikolaos Panigirtzoglou wrote in a note to clients late last month. He estimated that being dropped from the indices could drain $9bn from the company’s valuation as inflows from index-tracking funds dried up.
Cantor’s Knoblauch last week slashed his 12-month price target for the stock by 60 per cent, even as he warned that investors’ “fear” about Strategy’s direction and narrowing premium “is not warranted”.