Crypto Crash "Epicenter": MSTR Reports Huge Financial Losses, Saylor Open to "Selling Coins"

As Bitcoin's price breaks through key support levels, volatility in the digital asset market is intensifying, and Strategy (MSTR), at the center of the storm, is under unprecedented pressure.

The company, founded by Michael Saylor, confirmed on Thursday that due to a substantial impairment of the fair value of its Bitcoin holdings, its net loss in the fourth quarter had reached $12.4 billion. The loss is mainly attributed to unrealized fair value losses of $17.4 billion resulting from mark-to-market accounting requirements.

With Bitcoin falling below $63,000, Strategy's stock price plummeted 17.1% on Thursday, wiping out all gains made after the US election and bringing the stock down nearly 80% from its historical high in November 2024.

The value of the company’s Bitcoin holdings is now about $46 billion, with an average purchase cost of $76,052 per coin. This marks the first time since 2023 that the market value of its Bitcoin holdings has fallen below its cumulative cost basis.

Faced with the market crash, Michael Saylor admitted during the earnings call, “Selling Bitcoin is an option,” even though he continues to advocate “HODL” (hold on for dear life) on social media platform X.

What is even more unsettling to the market is the previously continuous cycle of financing and buying Bitcoin with “equity premium” has stalled. The company's cost basis has for the first time exceeded the market price, putting its financial experiment to a severe test.

With MSTR stock price dropping sharply, convertible bond investors are likely to seek early redemption for cash rather than conversion to shares. The first $1 billion redemption could become due on September 15, 2027, and another $6.4 billion could be due in 2028, creating a total potential cash demand of $8.2 billion.

The Logic of Financing to Buy Bitcoin Faces a Test

Strategy once served as a high-beta proxy for Bitcoin, with its stock price surging more than 3500% between 2020 and 2024. However, this engine was built on shaky foundations. With the launch of spot Bitcoin ETFs, investors now have cheaper and more direct ways to access the risk, weakening Strategy's uniqueness.

More crucially, the collapse of the valuation premium. Strategy's enterprise value once approached twice the value of its Bitcoin holdings, but now this premium has almost completely vanished. If Bitcoin’s price remains at current levels, Strategy's market value only needs to drop by about another 13% to completely eliminate the premium. Once the mNAV (ratio of enterprise value to crypto asset value) falls below 1, it means the company's market value is lower than the value of its Bitcoin holdings, and the logic of financing to buy Bitcoin will be completely invalidated.

During the post-earnings call, CEO Phong Le tried to reassure investors by saying “This is the first downturn you’re experiencing, my advice is to hold on,” but this comment sparked outrage in the live-stream chat. Benchmark Co. analyst Mark Palmer pointed out that in the current environment, market focus has shifted to how the company will raise funds under challenging conditions.

Balance Sheet Already Insolvent

The deterioration of financial data has intensified concerns over Strategy’s ability to meet its debt obligations. Data shows that as of February 1, the company held over 713,000 Bitcoins, with an average cost basis of $76,052. As Bitcoin’s trading price remains well below this cost line, Strategy’s balance sheet is already insolvent.

Strategy is burdened with $8.2 billion in convertible debt. While Saylor emphasizes the company has $2.25 billion in cash reserves, which is enough to cover interest and dividend payments for the next two years and that there is no margin call risk, market concerns persist.

Currently, Strategy’s convertible bond structure displays different maturity pressure points. The $1.01 billion of convertible bonds issued in September 2024 have a conversion price of $183.19, with holders able to exercise resale rights on September 15, 2027. The $3 billion zero-coupon convertible bonds issued in November 2024 have a conversion price as high as $672.40 and can be resold on June 1, 2028. Additionally, there are multiple convertible bonds with conversion prices between $149.77 and $433.43 facing resale pressure in 2028.

S&P Global previously warned in a report that if Bitcoin prices suffer severe pressure when the debt matures, the company could be forced to liquidate assets at low prices, which would be considered a “default-equivalent” debt restructuring.

Phong Le admitted in the conference call, if Bitcoin drops 90%, the company will not be able to repay debt solely by selling Bitcoin and will then be forced to seek debt restructuring.

Saylor Maintains Bullish Position

Despite the pressure, Saylor remained optimistic during the earnings call. “We have a crypto president who is committed to making the U.S. a Bitcoin superpower, the world's crypto capital, and a digital asset leader,” Saylor said. “You cannot underestimate the importance of support for this industry and digital capital at the highest levels of the political structure.”

Saylor also downplayed the threat of quantum computing to Bitcoin, saying it “will not pose a threat for at least 10 years,” and reaffirmed that it is mere “FUD” (fear, uncertainty, and doubt). He maintained his long-standing position that selling Bitcoin remains one of the options for responding to market conditions.

Strategy reiterated on Thursday that it does not expect to generate any profit or earnings for the current year or foreseeable future. Based on these expectations, the company stated that its distributions to perpetual preferred stockholders are expected to be tax-exempt.

However, well-known short sellers like Michael Burry have issued even more severe warnings. According to Bloomberg, Burry reiterated this week his scrutiny of Strategy, warning that a drop in Bitcoin could trigger a “death spiral” among corporate holders. This view aligns with long-term critics like Jim Chanos, who have long pointed out risks from Strategy's reliance on non-yielding assets and speculative leverage.

Meanwhile, at the conference, Saylor downplayed the threat of quantum computing to Bitcoin, calling it “FUD” (fear, uncertainty, and doubt), and said the threat would not materialize for at least another 10 years.

Though management is trying to maintain an optimistic tone and describes profitability as a distant prospect, with Bitcoin trading below cost and financing channels narrowing, investors are facing a stark reality check.

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