Strategy Confident in Covering Debt Even if Bitcoin Drops to $25K

Strategy, the firm led by Michael Saylor, is navigating challenges posed by the potential exclusion from the MSCI index and concerns regarding its debt if Bitcoin prices decline. Despite the risks, Strategy maintains it has ample assets to meet its debt obligations, even in a scenario where Bitcoin falls to $25,000.

Key Takeaways

Strategy asserts a strong 5.9x assets-to-debt ratio if Bitcoin drops to $74,000, and a 2x coverage if it crashes to $25,000.
Investors express doubt about the company’s long-term prospects as the MSCI delisting review approaches.
Strategy has significant holdings of Bitcoin and is implementing measures to mitigate risks associated with its debt.

We can cover our debt even if Bitcoin falls to $25k, says Strategy

Financial Position amidst Bitcoin Price Concerns

Michael Saylor’s Strategy (Nasdaq: MSTR) is currently facing dual challenges: the impending risk of being excluded from the MSCI index and fears tied to its debt obligations linked to Bitcoin's price fluctuations. Despite these pressures, the firm claims it is in a solid position to cover its debts. Should Bitcoin fall to its average cost basis of $74,000, Strategy indicates it retains a 5.9x asset-to-debt ratio. If Bitcoin were to crash to $25,000, that ratio remains at 2.0x.

Source: Strategy

Strategy finances its Bitcoin purchases through funds raised via debt or by selling shares of its main MSTR stock and other preferred stocks. The company has a convertible debt of $8.2 billion, with the first maturity due in September 2028. When considering obligations linked to preferred stocks, the total debt rises to $15.9 billion. Against its total assets, Strategy reports having 3.6 times the assets to meet its liabilities if Bitcoin falls to $74,000.

Market Reactions to Strategy's Debt Announcement

Despite Strategy's claims of financial stability, skepticism among investors persists. Critics have voiced concerns, suggesting that the firm’s current situation could spell trouble for the broader crypto market. One analyst, Ritesh, speculated that Strategy might be preemptively adopting a ‘bear market strategy’ in light of the concerns.

Comments on social media reflect this doubt, with one user humorously noting the firm's over-leverage. If Bitcoin were to drop below $74,000 or even to $25,000, the firm’s Bitcoin holdings could see their relative value or market-adjusted net asset value (mNAV) plummet to almost nothing, posing a bearish outlook. To boost this mNAV, Strategy might consider share repurchases through either selling some Bitcoin or incurring additional debt.

Looking ahead, an MSCI review scheduled for mid-January 2026 could significantly impact Strategy’s future. Since Strategy's holdings and their management have a considerable influence on Bitcoin and the overall cryptocurrency market, this review could help determine the mid-term direction for crypto.

As of now, Bitcoin is trading at $87,000, marking about a 15% decrease from Strategy's average cost basis of $74,000.