Strategy says it is prepared to survive an 88% bitcoin collapse. What's wrong with its plan?

Strategy, the largest corporate holder of bitcoin in the world, said it has enough assets to withstand a drop in the price of bitcoin to $8,000 and still fully fulfill its debt obligations. This message was published by Strategy representatives on their page in social network X, which intensified the ongoing discussion around the company's debt strategy.

Bitcoin's valuation of $8,000 implies an 88% collapse in the cryptocurrency's price relative to the current level. Strategy has 714,644 bitcoins on its account, SeekingAlpha notes, emphasizing that the sum of these assets, at current quotes, is estimated at about $49.3 billion.

As a treasury asset - an instrument for placing corporate reserves - Strategy started using bitcoin in 2020. Since then, the company has been building up its bitcoin reserves through debt, Coindesk notes. The volume of Strategy's net debt is now approximately $6 billion - the equivalent of 86,956 bitcoins, the portal points out, noting that the company's current crypto portfolio exceeds these assets by more than eight times. At the same time, Strategy noted that the company does not need to repay the entire debt in a lump sum, as the payment terms are distributed between 2027 and 2032.

In addition, Strategy said it intends to convert its existing convertible debt (a loan that lenders can exchange for shares in the company if the price of the securities rises to a certain level) into equity to avoid issuing new senior debt, Coindesk notes.

Strategy shares were down 3.4% at the Feb. 17 premarket, down 60% over the past year.

Critics of Strategy's debt strategy, including anonymous macro asset manager Capitalists Exploits, point out that while a bitcoin at $8k would theoretically cover Strategy's net debt of $6 billion, the company originally reportedly paid about $54 billion for its portfolio - meaning it bought each bitcoin for $76k on average, Coindesk writes. Therefore, the fall of the cryptocurrency to $8 thousand would mean a colossal paper loss of $48 billion for the company, which would seriously worsen the way the company's balance sheet looks in the eyes of creditors and investors, the portal points out.

In addition, says an unnamed Strategy critic, the company's available cash will be sufficient for about 2.5 years of debt service and dividend payments at current rates, while the company's software business generates only about $500 million a year, Coindesk writes. According to the portal's interlocutor, this will not be enough to service $8.2 billion of convertible bonds and $8 billion of Strategy's preferred shares, which provide for regular dividend payments comparable to permanent interest-bearing liabilities, the portal notes.

All of this means that if bitcoin drops to $8k, Strategy's ability to refinance may be limited.

Anton Golub, director of business development at crypto exchange Freedx, called Strategy's move to "equivalize" its debt a planned "drain on retail investors." In his opinion, if the share price falls and there is no debt conversion, Strategy will be forced to issue new shares to raise funds, which will dilute the stakes of current shareholders.

"Strategy will dilute shareholder stakes through the issuance of new shares and sell them on the market through ATM programs (a mechanism to gradually sell securities at the current market price - OnInvest) to raise money to settle with hedge funds. Strategy only looks brilliant during a bull market for bitcoin. In bear phases, dilution becomes a reality and hurts the company's shareholders," he wrote in a LinkedIn post.

If Strategy is forced to sell off its bitcoins to pay off its liabilities, it could lead to an oversupply in the market and an additional drop in cryptocurrency prices, Coindesk also notes.

Strategy reported a quarterly loss of over $12 billion on February 6, an 18-fold increase from the same period a year earlier. By comparison, the company's loss in the fourth quarter of 2024 was only $670.8 million, or $3.03 per share. Meanwhile, of the 17 analysts covering the company's stock, 15 advise buying it and two advise holding it in their portfolios. There is no advice to sell.

Given the scale of Strategy's investments in bitcoin, the dynamics of the company's shares largely correlate with the movement of the cryptocurrency. On February 17, the bitcoin price fell by 1.2% and is trading just above $68 thousand. Nevertheless, on February 10, Bernstein economists maintained their forecast of bitcoin price at $150 thousand by the end of 2026. And Tom Lee, a well-known crypto-optimist and chief investment officer of Fundstrat, said that bitcoin could be a more effective means of saving than gold.

At the same time Standard Chartered, one of the most active global banks in the field of digital assets, lowered on February 12 the forecast of the cost of bitcoin for the second time in less than a quarter from $150 thousand to $100 thousand, while in December last year the bank predicted for the cryptocurrency price at the level of $300 thousand. He also warned that before the stabilization of prices, the cost of bitcoin may fall to $50 thousand.

This article was AI-translated and verified by a human editor