Can MicroStrategy (MSTR) Withstand a Prolonged Bitcoin Downturn?

MicroStrategy's (MSTR) all-in bet on Bitcoin has redefined corporate treasury strategies in the digital age. As of October 2025, the company holds 640,808 bitcoins, valued at $70.9 billion, with a total cost basis of $47.44 billion, reflecting an unrealized gain of $23.46 billion. This aggressive allocation has positioned MicroStrategy as a bellwether for institutional Bitcoin adoption-but also exposed it to existential risks if Bitcoin's price falters. The question now is whether its liquidity risk management frameworks and capital-raising prowess can insulate it from a prolonged downturn.

Bitcoin as a Corporate Treasury Asset: A Double-Edged Sword

MicroStrategy's Bitcoin treasury strategy hinges on treating the cryptocurrency as a "digital gold" reserve asset. According to financial reports, by Q3 2025 the company reported operating income of $3.9 billion and net income of $2.8 billion, driven largely by Bitcoin's appreciation. However, this success is predicated on Bitcoin's continued dominance as a store of value. A sustained decline below its average cost basis of $74,433 per coin would erase paper profits and trigger margin pressures, potentially forcing asset sales or debt issuance to maintain operational liquidity.

The company's reliance on Bitcoin is further amplified by its capital structure. MicroStrategy has raised over $20 billion through convertible notes and equity offerings since 2020, including $6.8 billion in Q2 2025 and $3.7 billion by July 2025. These funds were used to acquire Bitcoin at a time when the asset's price was volatile but trending upward. Yet, if Bitcoin's value contracts, the company's leverage-already high given its $47.44 billion cost basis-could become a liability.

Liquidity Risk Management: Capital Markets as a Lifeline

To mitigate liquidity risks, MicroStrategy has diversified its capital-raising arsenal. In 2025, it introduced the world's first Treasury Preferred Stock, offering short-duration, high-yield returns to investors while maintaining price stability. By Q3 2025, the company had raised $5.1 billion through preferred equity instruments like STRF and STRK, which provide yields of 8% to 10.5% and are structured as return-of-capital for tax advantages. These instruments allow MicroStrategy to access liquidity without diluting common shareholders, preserving flexibility in its capital structure.

Cash reserves also play a role. As of September 30, 2025, the company reported $54.3 million in cash and equivalents, a modest buffer compared to its Bitcoin holdings. However, its ability to issue debt and equity remains robust. S&P Global Ratings assigned MicroStrategy a 'B-' credit rating in 2025, acknowledging its capacity to service debt despite Bitcoin's volatility. This rating reflects confidence in the company's capital-raising strategies but underscores the inherent risks of a treasury strategy concentrated in a single asset.

Contingency Plans: Navigating a Bitcoin Winter

MicroStrategy's contingency planning for Bitcoin volatility includes a mix of financial engineering and strategic patience. The company has explored Bitcoin derivatives and structured yield strategies to generate income without selling its holdings. For instance, perpetual preferred stocks like STRK and STRF provide steady cash flows, while convertible notes issued in prior years offer flexibility to manage debt maturities.

However, the most pressing risk lies in external triggers. The January 15, 2026, decision by MSCI to potentially exclude MicroStrategy from major benchmarks could trigger forced selling by index-tracking funds. Analysts estimate this could result in $2.8 billion in immediate outflows, with total losses reaching $8–$9 billion if other indices follow. While CFO Andrew Kang claims the company has "multiple levers" to handle such scenarios, the lack of a diversified treasury portfolio remains a vulnerability.

The Saylor Factor: Vision vs. Reality

Michael Saylor's bullish outlook-predicting Bitcoin could reach $150,000 by year-end 2025 and $20 million in 20 years-has galvanized investor sentiment. Yet, his vision relies on Bitcoin's continued appreciation. If the asset underperforms, the company's financial metrics could deteriorate rapidly. For example, a drop below $70,000 would erase unrealized gains and force MicroStrategy to rely on high-cost debt or equity dilution to maintain operations.

Conclusion: Resilience Tested

MicroStrategy's ability to withstand a prolonged Bitcoin downturn depends on three factors: its capacity to raise capital, the stability of its debt structure, and the effectiveness of its risk-mitigation tools. While its capital markets platform and preferred equity instruments provide short-term liquidity, the company's treasury remains exposed to Bitcoin's volatility. A diversified approach-such as allocating a portion of reserves to stable assets or hedging Bitcoin exposure-could enhance resilience. For now, investors must weigh the company's innovative strategies against the existential risks of a single-asset treasury model.