The Viability of MicroStrategy's Bitcoin Strategy in a Shifting Index Landscape

MicroStrategy's (MSTR) Bitcoin-centric capital model has long been a subject of fascination and controversy. By treating Bitcoin as a corporate treasury asset and leveraging equity issuance to accumulate BTC, the company has created a self-reinforcing structure that thrives on speculative optimism. However, as the market enters 2025 with Bitcoin volatility and index reclassification risks looming, the structural vulnerabilities of this strategy are becoming impossible to ignore. This analysis examines the interplay between MicroStrategy's leveraged capital model, its proximity to a "mNAV death spiral," and the existential threat posed by potential exclusion from major equity indices.

Structural Risks in the Capital Model

MicroStrategy's financial architecture is inherently fragile. The company's market-to-net-asset-value (mNAV) ratio, a critical metric for assessing leverage, has deteriorated sharply. As of October 2025, the mNAV stood at 1.27x, far below the 2.5x threshold required to sustain large-scale Bitcoin purchases. A recent academic paper warns that a drop below 1.00-a scenario now within reach-could trigger a "death spiral," where falling Bitcoin prices force dilutive equity issuance, further depressing the stock and accelerating BTC losses. This dynamic was starkly illustrated in late 2025, when a 17% decline in Bitcoin prices led to a 48% collapse in MSTR stock, amplifying losses threefold.

The company's reliance on convertible securities and at-the-market (ATM) equity offerings compounds these risks. While these instruments have enabled Bitcoin accumulation, they also create a recursive loop: issuing equity to buy BTC, which in turn drives up the stock price, only to repeat the cycle when BTC rallies. However, this model now faces a liquidity crunch. . MicroStrategy's USD Reserve-established to cover preferred dividends and debt obligations-holds $1.44 billion, sufficient for 21 months of payments. Yet, this reserve cannot be deployed for Bitcoin purchases, effectively capping the company's ability to self-fund further accumulation. CEO Phong Le has acknowledged that selling Bitcoin may become necessary if liquidity pressures persist, a stark reversal of the company's long-held "never sell" doctrine.

Index Reclassification: A Systemic Threat

The most immediate existential risk to MicroStrategy's capital model stems from potential reclassification by index providers. MSCI's proposed rule changes, which would exclude firms with digital asset holdings exceeding 50% of total assets, directly target MicroStrategy, whose Bitcoin holdings constitute ~90% of its balance sheet. If implemented, this rule could trigger up to $8.8 billion in passive outflows as index-tracking funds are forced to divest MSTR shares. Such a move would not only exacerbate liquidity constraints but also accelerate the mNAV death spiral by further depressing the stock price.

The ripple effects extend beyond MSCI. Exclusion from the Nasdaq 100 or S&P 500 would compound the damage, as these indices collectively represent trillions in passive assets. JPMorgan estimates that a dual exclusion could result in $2.8 billion–$8.8 billion in outflows, depending on whether other index providers follow suit. This scenario would severely strain MicroStrategy's ability to service its $807 million annual preferred dividend obligations, creating a feedback loop of forced sales and declining asset values.

A Fragile Equilibrium

MicroStrategy's updated FY2025 guidance reflects a more cautious approach. The company now projects Bitcoin prices between $85,000 and $110,000 by year-end, with adjusted BTC Yield Targets of 22%–26% and Dollar Gain Targets of $8.4 billion–$12.8 billion. These projections hinge on successful capital raises, yet the company's stock currently trades at a discount to its net asset value (NAV), undermining the very premise of its leveraged buy-and-repeat strategy. The USD Reserve, while a prudent contingency, cannot offset the structural risks of a capital model that depends on perpetual equity issuance and BTC price appreciation.

CEO Phong Le's admission that Bitcoin sales may become a "last resort" underscores the fragility of the current strategy. While the company has historically positioned itself as a "Bitcoin ETF" with a software business, its reliance on speculative positioning and regulatory advantages is no longer a sustainable moat. The recent 30% drop in Bitcoin prices from October highs has already pushed the company closer to a break-even point on its BTC holdings, and further declines could force a reckoning with its capital structure.

Conclusion: A High-Stakes Gamble

MicroStrategy's Bitcoin strategy remains a high-stakes gamble with asymmetric risks. While the company's long-term commitment to BTC is unwavering, the structural vulnerabilities of its capital model-excessive leverage, a collapsing mNAV, and index reclassification risks-pose existential threats. The coming months will be critical: if Bitcoin stabilizes and index providers maintain MSTR's inclusion, the company may yet avoid a death spiral. However, a sustained BTC downturn or index exclusion could trigger a cascade of forced sales, liquidity crises, and a collapse in shareholder value. For investors, the key takeaway is clear: MicroStrategy's viability as a Bitcoin proxy is no longer a bet on BTC's price alone, but on the resilience of its capital structure in the face of systemic headwinds.