MicroStrategy's Bitcoin Strategy: Operating Business or Digital Fund?

MicroStrategy, now rebranded as Strategy Inc., has become a lightning rod in the debate over whether a company can balance traditional enterprise software operations with a speculative bet on Bitcoin. As of 2025, the firm holds 649,870 Bitcoin, valued at over $69 billion, while generating just $128.7 million in core business revenue during Q3 2025. This stark contrast raises a critical question: Is MicroStrategy a software company with a side hustle in crypto, or a digital fund masquerading as a public corporation? The answer has profound implications for its index inclusion risks and financial sustainability.

Core Business vs. Bitcoin Gains: A Tectonic Imbalance

MicroStrategy's financials in 2025 reveal a company whose identity is increasingly defined by its Bitcoin holdings rather than its core operations. In Q3 2025, the firm reported $3.9 billion in unrealized gains from Bitcoin, contributing to a net income of $2.8 billion-a dramatic turnaround from a $340 million net loss in the same period the previous year. Meanwhile, its core business-enterprise software and subscription services-generated $128.7 million in total revenue, with subscription services up 65.4% year-over-year to $46.0 million.

This imbalance is not just quantitative but qualitative. Bitcoin-related gains now dwarf operating income, with the company projecting $34 billion in operating income for 2025 assuming Bitcoin averages $150,000 annually. Such projections hinge on a single asset's price performance, a model more akin to a hedge fund than a diversified enterprise software firm. As one analyst noted, "MicroStrategy's financial statements read like a crypto fund's balance sheet" not a SaaS company's.

Index Inclusion Risks: A $9 Billion Outflow Looming

The company's Bitcoin-centric model now threatens its inclusion in major financial indices. MSCI has proposed excluding firms where digital assets constitute 50% or more of total assets and form the primary business activity. MicroStrategy's Bitcoin holdings currently represent over 90% of its total assets, given its market capitalization of $57 billion (fully diluted). If excluded from the MSCI USA and Nasdaq 100 indexes, the firm could face a $9 billion outflow from passive funds, per JPMorgan estimates.

This risk is not hypothetical. The final decision on MSCI's proposal is due by January 15, 2026, and other index providers may follow suit. Such an exclusion would directly challenge CEO Phong Le's strategy of accumulating Bitcoin while maintaining dividend distributions. Passive fund outflows could force MicroStrategy to liquidate holdings or raise capital through dilutive means, undermining its long-term Bitcoin thesis.

Financial Sustainability: A House of Cards?

MicroStrategy's debt structure offers some short-term flexibility but exposes vulnerabilities in a prolonged downturn. The firm holds $1.01 billion in convertible senior notes, with the next major repayment due in September 2027 according to reports. These notes allow repayment in cash, shares, or a combination, reducing immediate pressure to sell Bitcoin. However, Bitcoin's recent dip below $108,000 triggered an adjusted Net Asset Value (mNAV) threshold of 1.04x, limiting the company's ability to raise capital via common stock sales.

To circumvent this, MicroStrategy is exploring Bitcoin derivatives and alternative financing tools to sustain dividends without further diluting shareholders. While creative, these strategies rely on Bitcoin's price stability. Analysts warn that a prolonged stagnation through 2028 could force partial liquidation of holdings to meet obligations according to experts. This dependency on a single asset's performance-coupled with a debt structure tied to its volatility-raises questions about the sustainability of its financial model.

Conclusion: A Digital Fund in Corporate Clothing

MicroStrategy's Bitcoin strategy has transformed it into a hybrid entity: a public company with the risk profile of a speculative fund. While its core business shows modest growth, the lion's share of its value and income now derives from Bitcoin's price action. This dual identity creates a paradox: the company is both a target for index inclusion (due to its market capitalization) and a candidate for exclusion (due to its asset composition).

For investors, the key takeaway is clear: MicroStrategy's future is inextricably linked to Bitcoin's price trajectory. If the cryptocurrency continues to appreciate, the firm's model could prove resilient. But if Bitcoin stagnates or declines, the company's financial sustainability-and its place in major indices-will be at risk. In the end, MicroStrategy may be less a software company and more a cautionary tale of how digital assets can redefine corporate identity.