Michael Saylor’s corporate Bitcoin holdings, now under the banner of Strategy, Inc. (formerly known as MicroStrategy), have recently fallen below the average purchase price. As Bitcoin dipped into the mid-$70,000s, the market value of the approximately 712,000 BTC held by the firm dropped below the roughly $76,000 average cost per coin. This shift raises concerns about unrealized losses, indicating that the company is currently underwater on its Bitcoin investments.
Despite this challenging scenario, being underwater does not compel the firm to sell its holdings. Strategy’s Bitcoin assets are not utilized as collateral, meaning there are no margin calls or urgent liquidation triggers. As a result, the company isn’t under pressure to offload its assets due to the current price dip.
However, the implications of sitting on these losses are significant. One inevitable consequence is that fundraising becomes more challenging. Historically, Strategy has financed additional Bitcoin purchases through at-the-market offerings (ATM). This model thrives when the company’s stock is valued at a premium to the net asset value (NAV) of its Bitcoin holdings. Given the current downturn in Bitcoin prices, the company’s shares now trade at a discount to NAV, complicating future capital raises and potentially leading to greater dilution of shareholders’ interests.
Furthermore, while the ability to buy Bitcoin is constrained, it has not come to a complete halt. The lower stock price relative to the value of Bitcoin means that raising funds without diluting existing shareholders is more limited. This isn’t a dire situation, but rather a tactical adjustment. For example, in 2022, during a similar market environment, the company only purchased about 10,000 Bitcoin throughout the year.
On a more optimistic note, while Strategy’s debt load, approximately $8.3 billion in convertible notes, may appear daunting, it does not pose an immediate risk for forced Bitcoin sales. The company has flexibility in managing its debt, with the ability to roll over maturities or convert debt to equity. Notably, the first major debt obligations are not due until late 2027, affording Strategy time to navigate its financial landscape without immediate pressure to liquidate assets.
