The High-Stakes Battle for Strategy's Survival: Bitcoin's mNAV Crisis and Index Exclusion Risks

The Bitcoin treasury model, once hailed as a revolutionary approach to corporate finance, now faces a reckoning in the 2025 bear market. As crypto prices plummet and macroeconomic uncertainty intensifies, firms like Michael Saylor's Strategy Inc. (MSTR) and others are grappling with a perfect storm of liquidity, leverage, and custody risks. At the heart of this crisis lies the modified Net Asset Value (mNAV), a metric that has become a barometer of institutional credibility-and a potential trigger for catastrophic index exclusions.

The mNAV Collapse: A Breakdown of the Bitcoin Treasury Model

The mNAV, which measures the ratio of a company's enterprise value to its Bitcoin holdings, has long been a cornerstone of the crypto treasury strategy. However, this metric is now in freefall. For Strategy Inc., the mNAV has collapsed to just over 1.1, a stark departure from its previous premium over Bitcoin's market value. This collapse reflects a broader trend: public digital asset treasury (DAT) firms have seen their combined market capitalization drop from $176 billion in July 2025 to $99 billion today, driven by ETF outflows and falling crypto prices.

The implications are profound. A low mNAV signals that a firm's valuation is no longer justified by its growth narrative but is instead tethered to the volatile price of Bitcoin. For Strategy Inc., which holds over 3% of all Bitcoin in circulation, this means its balance sheet is increasingly exposed to market swings. JPMorgan analysts warn that if the firm's mNAV continues to erode, it could trigger a cascade of forced asset sales to meet leverage ratios, further depressing Bitcoin's price.

Index Exclusion Risks: A Looming Catastrophe

The mNAV crisis has also drawn the attention of index providers, who are reevaluating how to classify Bitcoin treasury firms. MSCI has proposed excluding companies where digital assets represent 50% or more of total assets-a rule that directly targets Strategy Inc. and others. The potential fallout is staggering: if MSCI acts, the firm could face $2.8 billion in outflows, with additional losses of up to $8.8 billion if other index providers follow suit.

Such exclusions would not only strip these firms of liquidity but also undermine their institutional credibility. For years, Bitcoin treasuries have relied on index inclusion to attract passive investment flows. A removal would force index-tracking funds to sell affected stocks, exacerbating price declines and eroding investor trust. This dynamic mirrors the 2022 collapse of FTX, where a single point of failure in custody practices triggered systemic panic.

Structural Vulnerabilities: Liquidity, Leverage, and Custody

The risks extend beyond index exclusions. Bitcoin treasury firms are inherently vulnerable to three structural weaknesses:

1. Liquidity Crunches: As crypto prices fall, firms with leveraged balance sheets face margin calls. Bitmine, for example, holds 3.56 million ETH at an average cost of $4,010, now sitting on a $4.52 billion unrealized loss as ETH trades near $2,745. To meet obligations, firms like FG Nexus have already begun selling assets- selling over 10,000 ETH to fund buybacks in a move signaling desperation.

2. Leverage Amplification: Many DATs have financed their Bitcoin purchases through convertible debt and equity dilution. This creates a flywheel effect: rising Bitcoin prices justify further borrowing, but falling prices force liquidations. Forward Industries, which invested heavily in Solana (SOL), has seen its portfolio value drop 44.8% as SOL's price fell 32%.

1. Custody Risks: The FTX collapse remains a cautionary tale. Bitcoin treasury firms often hold large, undiversified crypto portfolios, creating single points of failure. While partnerships like VerifiedX and Crypto.com's $1.5 billion custody solution offer institutional-grade security, many firms still lack robust custodial infrastructure.

Mitigation and the Path Forward

Despite these challenges, the Bitcoin ecosystem is not without defenses. A recent third-party audit of Bitcoin Core found no critical vulnerabilities in its codebase, reinforcing the network's long-term stability. Meanwhile, firms like Metaplanet are experimenting with preferred shares to raise capital without diluting common equity. These innovations suggest that while the bear market has exposed vulnerabilities, the sector is not beyond repair.

However, survival will require more than technical fixes. Regulators must clarify how to treat crypto treasuries under existing financial frameworks, while firms must adopt conservative leverage ratios and diversified custody strategies. For Strategy Inc., the path forward hinges on whether it can stabilize its mNAV and avoid index exclusion-a battle that will define the future of Bitcoin treasury firms in a volatile market.