TLDR
- Strategy (formerly MicroStrategy) stock is down over 50% from its all-time high in November 2021, while its leveraged ETF products have plunged 85-90%
- Despite market decline, Strategy’s Bitcoin holdings remain profitable with a 32% gain on its $66,300 average cost basis
- The company holds 499,096 Bitcoin worth approximately $43 billion, with $8.2 billion in outstanding debt
- Bitcoin would need to fall to around $16,500 before Strategy might be forced to liquidate holdings
- Strategy continues to raise capital through debt issuance, convertible notes, and stock offerings despite its core software business showing declining revenue
Strategy, formerly known as MicroStrategy, has seen its stock price tumble more than 50% from its all-time high reached in November 2021. Despite this sharp decline, the company’s massive Bitcoin holdings remain in the black.
The stock was trading around $250 on Wednesday, down approximately 55% from its peak of $543 reached on November 21. This drop has been even more painful for investors in leveraged products tied to Strategy’s performance.
The Defiance Daily Target 2x Long MSTR ETF has plunged 90% from its high. Similarly, the T-REX ETF has fallen 85% during the same period.
Despite the stock’s downward trend, Strategy’s Bitcoin investment continues to be profitable. Since beginning its Bitcoin purchases in August 2020, the company is up 32% on its holdings.
Strategy has acquired 499,096 Bitcoin at an average cost of $66,300 per coin. With Bitcoin trading around $87,000, this represents an unrealized profit of $10.65 billion.
The company officially changed its name from MicroStrategy to Strategy on February 5. This rebranding reflects its shift from an enterprise software company to the largest corporate holder of Bitcoin.
Stock Rise
Since making its first Bitcoin purchase in 2020, Strategy’s stock has skyrocketed nearly 1,800%. This performance has outpaced every company in the S&P 500, including Nvidia.
A key question for investors is whether Strategy might be forced to sell some of its Bitcoin holdings. According to available information, all of Strategy’s Bitcoin remains unencumbered, meaning none has been pledged as collateral.
The company has approximately $8.2 billion in outstanding debt. As long as the value of its Bitcoin exceeds this debt level, Strategy would not need to sell any holdings.
For forced liquidation to become necessary, Bitcoin would need to fall to around $16,500, representing an 80% drop from current prices.
Two of Strategy’s six outstanding convertible bonds—the 2029 and 2030 issues—are currently trading below their conversion price. These two bonds account for $5 billion of the company’s $8.2 billion total debt.
However, since these bonds don’t mature until 2029, Strategy has time for recovery before any action would be required.
Core Business?
Strategy’s core software business has been showing little growth. In 2024, it generated total revenue of $463.5 million, a 6.6% year-over-year decline.
To fund its Bitcoin purchases, Strategy has raised capital through various means. These include debt issuance, common stock offerings, and convertible notes.
When Strategy began its Bitcoin strategy, it had approximately $531 million in net cash. This has now deteriorated to a net debt of $7.2 billion as of Q4 2024.
The company’s outstanding shares have increased by 178.6% to 258.1 million since August 2020. This means a share has been diluted by approximately 64% in less than five years.
For future Bitcoin purchases, Strategy has at least $6.2 billion available from convertible notes. The company has also recently launched a public offering of 7.3 million shares of preferred stock, expected to generate approximately $563 million.
The main risk to Strategy is a prolonged Bitcoin price decline. If this happens, holders of convertible notes might be unwilling to convert their debt into Strategy stock, forcing the company to repay the loans in cash.
