The "center point" of the crypto market crash: MSTR reports huge losses, Saylor says open to "selling coins"

As Bitcoin prices fall below key support levels, turbulence in the digital asset market is intensifying, and at the center of this storm, Strategy (MSTR) is facing unprecedented pressure.

The company, founded by Michael Saylor, confirmed on Thursday that due to a significant write-down of the fair value of its Bitcoin holdings, its net loss in the fourth quarter reached as high as $12.4 billion. The loss mainly stems from a $17.4 billion unrealized fair value loss caused by mark-to-market accounting standards.

As Bitcoin dropped below $63,000, Strategy’s stock plummeted 17.1% on Thursday. This not only erased all gains made after the US election but also brought the stock down nearly 80% from its all-time high in November 2024.

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

Facing a market collapse, Michael Saylor admitted during the earnings call, “Selling Bitcoin is an option,” even as he loudly proclaims “HODL” on social media platform X.

What’s more unsettling is that the cycle of financing by repeatedly buying Bitcoin with “equity premiums” has come to a halt. The company’s cost basis has now exceeded the market price for the first time, and its financial experiment is under severe scrutiny.

As MSTR’s stock price crashes, convertible bond investors are likely to seek early redemption for cash rather than convert. The first $1 billion redemption may mature on September 15, 2027, with another $6.4 billion potentially maturing in 2028, bringing the total potential cash demand to $8.2 billion.

The logic of financing Bitcoin purchases is being tested

Strategy has served as a high-beta proxy for Bitcoin, with its stock soaring over 3,500% from 2020 to 2024. However, this engine is built on unstable ground. With the launch of spot Bitcoin ETFs, investors now have cheaper, more direct risk exposure, weakening Strategy’s uniqueness.

More critically, the valuation premium has collapsed. Strategy’s enterprise value once approached twice the value of its Bitcoin holdings, but now that premium has nearly disappeared. If Bitcoin prices stay at current levels, Strategy’s market cap would only need to decline about 13% to fully eliminate the premium. Once the mNAV (enterprise value to crypto asset value ratio) falls below 1, it means the company’s market value is less than its coin holdings, and the logic of financing Bitcoin purchases will be completely invalid.

In the earnings call, CEO Phong Le tried to reassure investors, saying, “This is your first downturn, and my advice is to hold on,” but this statement sparked anger in the live comment section. 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.

Book value already insolvent

Deteriorating financial data has heightened market concerns about Strategy’s debt repayment ability. Data shows that as of February 1, the company held over 713,000 Bitcoin, with an average cost basis of $76,052. With Bitcoin trading well below this cost, Strategy’s books are now insolvent.

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

Currently, Strategy’s convertible debt structure shows different maturity pressure points. The $1.01 billion convertible bond issued in September 2024 has a conversion price of $183.19, with holders able to exercise a put option on September 15, 2027. The $3 billion zero-coupon convertible issued in November 2024 has a conversion price of $672.4 and can be put back on June 1, 2028. Additionally, several other convertible bonds with conversion prices between $149.77 and $433.43 will face put options in 2028.

S&P Global previously warned that if Bitcoin prices face severe pressure at debt maturity, the company might be forced to liquidate assets at low prices, which would be viewed as a “debt restructuring equivalent to default.”

Phong Le candidly stated during the conference call, “If Bitcoin drops 90%, we won’t be able to pay off the debt just by selling Bitcoin, and will have to seek debt restructuring.”

Saylor remains bullish

Despite the pressure, Saylor maintained optimism during the earnings call. “We have a cryptocurrency president who is determined to make the US a Bitcoin superpower, the world’s crypto capital, and a leader in digital assets,” Saylor said. “You can’t underestimate the importance of gaining support for this industry and digital capital at the highest levels of political structure.”

Saylor also downplayed the threat of quantum computing to Bitcoin, claiming it “won’t be a threat for at least 10 years,” and reiterated that this is “FUD” (fear, uncertainty, doubt). He maintains his stance that selling Bitcoin remains one of the options to respond to market conditions.

Strategy reiterated on Thursday that it does not expect to generate profits or earnings in the current year or foreseeable future. Based on these expectations, the company said that current distributions to perpetual preferred shareholders are expected to be tax-exempt.

However, well-known short-sellers like Michael Burry have issued more severe warnings. According to Bloomberg, Burry reaffirmed his scrutiny of Strategy this week, warning that Bitcoin’s decline could trigger a “death spiral” among corporate holders. This view aligns with long-term critics like Jim Chanos, who have long pointed out the risks of Strategy relying on unprofitable assets and speculative leverage.

Meanwhile, Saylor downplayed the threat of quantum computing during the meeting, calling it “FUD,” and said it would only pose a threat at least 10 years from now.

Despite management’s efforts to maintain an optimistic tone and describe profitability as a distant prospect, investors are facing a harsh reality as Bitcoin falls below cost and financing channels tighten.

Risk warning and disclaimer

        The market is risky, and investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Invest accordingly at your own risk.