Bitcoin Treasury firm Strategy ( MSTR ) said it can ride a potential dip in the price of the biggest cryptocurrency to $8,000 and still service its debt.
“Strategy can withstand a move in the $BTC price to $8K and still have sufficient assets to fully cover our debt,” said the Michael Saylor-led firm at X.
The company, which holds more bitcoin than any other publicly traded company, has accumulated 714,644 BTC, worth about $49.3 billion at current prices, since its adoption as a financial asset in 2020.
Over the years, it has piled bitcoin via debt, a tactic echoed by peers such as Tokyo-listed Metaplanet (3350). It owes about $6 billion — the equivalent of 86,956 BTC — against bitcoin holdings over eight times that.
While these debt-financed bitcoin purchases were widely cheered during the crypto bull run, they have become a liability in the wake of the token’s crash to nearly $60,000 from its October peak of over $126,000.
If Strategy is forced to liquidate its bitcoin holdings to pay the debt, it could flood the market and drive prices even lower.
In the Sunday post, Strategy assured investors that its bitcoin holdings would still be worth $6 billion even at a BTC price of $8,000, enough to cover its debt.
The company noted that it does not have to pay all of its debt at once, as the maturity dates are spread over 2027 and 2032.
To further allay concerns, Strategy said it plans to switch existing convertible debt to equity to avoid issuing additional senior debt. Convertible debt is a loan that lenders can exchange for MSTR shares if the share price rises high enough.
Not everyone is impressed
Skeptics are back.
Critics like the pseudonymous macro asset manager Capitalists Exploits point out that while $8,000 of bitcoin could technically cover the $6 billion in net debt, Strategy reportedly paid about $54 billion for its caches, an average of $76,000 per BTC. A drop to $8,000 would equate to a whopping $48 billion paper loss, making the balance sheet look ugly for lenders and investors.
Cash on hand would only cover about 2.5 years of debt and dividend payments at current rates, the observer argued, and the software business pulls in just $500 million a year. That’s far too little to handle the $8.2 billion in convertible bonds plus $8 billion in preferred stock, which require large, ongoing dividends like endless interest bills.
All of this means that refinancing may not be readily available if bitcoin falls to $8,000.
“Traditional lenders are unlikely to refinance a company whose primary asset has declined substantially, with conversion options rendered financially worthless, deteriorating credit metrics and a stated policy of holding BTC for the long term (restricting collateral liquidity),” the observer said in a post on X. “New debt issuance is likely to require 15-2% or higher investors. entirely under stressed market conditions.”
Dump on retail investors
Anton Golub, Chief Business Officer at crypto exchange Freedx, called the “equitizing” move a planned “dump on retail investors.”
He explained that buyers of Strategy’s convertible bonds have primarily been Wall Street hedge funds, who are not bitcoin fans but “volatility arbitrageurs.”
The arbitrage involves hedge funds taking advantage of discrepancies between the expected or implied volatility of a convertible bond’s embedded options and the actual volatility of the underlying stock.
Funds typically buy cheap convertible bonds and bet against or “short” the stock. This setup helps them sidestep large price swings while profiting from bond yields, up-and-down volatility and a “pull-to-par” boost, where deeply discounted bonds rise toward full value at maturity.
According to Golub, Strategy’s convertible bonds were priced for small ups and downs. But the stock swung wildly and allowed hedge funds to mint money from the arbitrage: buying the bonds cheaply while betting against the stock.
This setup worked beautifully when stocks traded above $400, the trigger for bondholders to convert debt into stocks. Hedge funds closed their shorts, bonds disappeared via conversion, and strategy avoided cash payouts.
At $130 per share, conversion makes no sense. So hedge funds are likely to demand full cash repayment when the bonds mature, potentially putting Strategy’s finances under pressure.
Golub expects the firm to respond by diluting shares.
“Strategy will: dilute shareholders by issuing new shares, dump on retail sales via ATM sales, to raise cash to pay hedge funds,” he said in an explanatory post on LinkedIn.
“Strategy only looks brilliant during Bitcoin bull markets. In bear markets, dilution is real and destroys MSTR shareholders,” he added.
