MicroStrategy's Bitcoin Strategy and the Risk of Forced Sales in a Downturn

MicroStrategy (MSTR), now rebranded as Strategy Inc., has become one of the most prominent corporate holders of Bitcoin, accumulating over 650,000 BTC as of late 2025. Its leveraged accumulation model-financed through convertible debt, preferred stock, and equity issuances-has transformed the company into a hybrid entity: a software business with a Bitcoin ETF-like balance sheet. However, this strategy is increasingly exposed to liquidity constraints and the fragility of a highly leveraged position. As Bitcoin's price volatility intensifies and macroeconomic headwinds persist, the risk of forced sales looms large, particularly if key thresholds like the market-to-NAV (mNAV) ratio or liquidity reserves are breached.

The Leveraged Accumulation Model: A Double-Edged Sword

MicroStrategy's Bitcoin strategy hinges on aggressive debt and equity financing. As of mid-2025, its Bitcoin holdings are valued at approximately $72 billion, with a cost basis of $43.6 billion, reflecting a 65% unrealized gain. This leverage has amplified returns in bull markets but introduces significant downside risk. For instance, if Bitcoin's price drops to $25,000-a level not unthinkable in a prolonged bear market-the company's residual equity cushion would nearly vanish, leaving it with only 2x coverage of its $8.2 billion in convertible debt.

The company's capital structure is intentionally designed to avoid traditional debt covenants or margin calls, but this flexibility comes at a cost, without hard constraints, MicroStrategy's liquidity depends entirely on its ability to raise capital through equity or debt markets. Yet, as Bitcoin's price has fallen, so too has the company's mNAV ratio-a critical metric comparing its enterprise value to the net asset value of its Bitcoin holdings. As of November 2025, mNAV stood at 0.95x, perilously close to the 0.9x "danger zone" where forced liquidity measures could be triggered.

Liquidity Reserves: A Buffer, Not a Panacea

To mitigate short-term risks, MicroStrategy established a $1.44 billion USD reserve in December 2025, intended to cover 21 months of preferred dividend payments and interest obligations. This reserve, funded by proceeds from Class A common stock sales, was a strategic move to reassure investors amid Bitcoin's sharp price declines. CEO Phong Le emphasized that the reserve reduces the likelihood of needing to liquidate Bitcoin holdings, at least in the near term.

However, the reserve's effectiveness is contingent on Bitcoin's price trajectory. If the asset enters a prolonged downturn-akin to the "Bitcoin winter" scenarios discussed by analysts-the $1.44 billion may prove insufficient. For example, if Bitcoin's price falls below $74,000, the company's coverage ratio for convertible debt would drop from 5.9x to 2x, significantly increasing the risk of insolvency, should capital markets tighten. Moreover, the company faces annual liquidity burdens of $750–$800 million in preferred dividend payments, a structural drag that could force Bitcoin sales if equity or debt financing becomes unattainable.

The mNAV Threshold: A Self-Imposed Lifeline

MicroStrategy's mNAV ratio is a critical linchpin in its strategy. The company has explicitly stated that it may sell Bitcoin if its stock trades below 1x mNAV-a scenario where its market capitalization falls below the value of its Bitcoin holdings-and it cannot raise new capital. This threshold, while not a legal covenant, acts as a de facto liquidity trigger.

As of late 2025, the company's mNAV has already dipped below 1x in certain market conditions, raising concerns about its ability to sustain its Bitcoin accumulation without diluting shareholders. For instance, issuing more stock to buy Bitcoin at a mNAV below 1x would exacerbate dilution, further eroding investor confidence. This creates a self-reinforcing cycle: falling stock prices → increased dilution → further stock price declines.

The Risk of a "Death Spiral"

The most dire risk for MicroStrategy is a "death spiral" scenario, where declining Bitcoin prices force the company to sell assets to meet obligations, thereby accelerating the price decline. This dynamic is not hypothetical: the company has acknowledged that a sharp drop in Bitcoin's price could lead to forced sales, particularly if its mNAV falls below 1x and capital markets freeze.

For example, if Bitcoin's price drops to $25,000, the company's Bitcoin holdings would cover its convertible debt by only 2x, leaving little room for error. In such a scenario, MicroStrategy might be compelled to sell Bitcoin to service its preferred dividends or refinance maturing debt. This would transform the company from a "never sell" Bitcoin accumulator into a leveraged ETF, with all the volatility and liquidity risks that entails.

Conclusion: A High-Stakes Gamble

MicroStrategy's Bitcoin strategy is a bold bet on the long-term value of the asset, but it is increasingly exposed to short-term liquidity risks. While the $1.44 billion reserve provides a temporary buffer, it does not eliminate the fragility of a leveraged position. The company's reliance on capital markets to fund its Bitcoin purchases means that any prolonged downturn-coupled with a mNAV below 1x-could force it into a cycle of asset sales and dilution.

For investors, the key question is whether MicroStrategy's balance sheet can withstand a multi-year bear market. If Bitcoin's price remains range-bound or declines further, the company's strategy may prove unsustainable. Conversely, if Bitcoin rebounds sharply, the leveraged model could generate outsized returns. But in the interim, the risk of forced sales remains a critical vulnerability-one that could redefine MicroStrategy's role in the Bitcoin ecosystem.