MicroStrategy: Systemic Risk Reassessment Under the Belief in Bitcoin

As the publicly traded company with the largest holdings of Bitcoin globally, MicroStrategy has been regarded as a benchmark for institutional adoption of cryptocurrencies. However, as its holdings exceed the company's market value, financing costs continue to rise, and the risk of MSCI index exclusion approaches, its "leveraged accumulation of coins" model is facing an unprecedented stress test. This article systematically dissects its business essence, financing structure, risk transmission mechanism, and potential paths to disaster, warning the market to reassess the true risks of this "giant Bitcoin shadow fund."

1. From Software Company to "Bitcoin Shadow ETF"
MicroStrategy (NASDAQ: MSTR)'s transformation is regarded as Wall Street's most aggressive strategic bet. Founded in 1989, this business intelligence software company had stable but sluggish revenue growth before 2020. The turning point came in August 2020 when founder Michael Saylor announced that Bitcoin would serve as its primary reserve asset. Over the next four years, the company gradually evolved into a "Bitcoin investment fund in corporate clothing."
As of November 2025, the company's business presents a distinct dual structure: software business revenue accounts for less than 5%, while the value of Bitcoin holdings accounts for over 95% of the company's total assets. The correlation coefficient between its stock price and the price of Bitcoin reaches as high as 0.92, completely losing the valuation independence typical of traditional enterprises. The market has clearly recognized its essence— a listed entity that leverages multiple financing tools such as stock issuance, convertible bonds, and perpetual preferred shares to go long on Bitcoin. This model exponentially amplifies returns in a bull market, but its fragility is fully exposed in a volatile market.
2. Position Logic: The "Positive Feedback" Trap of Buying More as Prices Rise
(1) Position Size and Cost Structure
MicroStrategy currently holds approximately 649,870 Bitcoins, with a book value of over $66 billion, but its market capitalization is only $50.9 billion (as of November 21, 2025). This inversion marks the first time the market has refused to pay a premium for it. The company's average holding cost is $74,433, and when the Bitcoin price falls to $80,000, its floating profit margin is only 8%. Once the price falls below the cost line, the narrative of 'buying more as it drops' will completely collapse, and market confidence will face a breakdown.
(2) The risk of reversal of the positive circulation mechanism
Its business model relies on a sophisticated positive feedback loop: stock price increases → enhanced financing capability → increased holdings of Bit → push up stock price → further financing. The maintenance of this loop requires two major prerequisites: sustained premium (mNAV > 1) and low-cost financing. However, currently, both prerequisites have shown cracks:
1. Premium Disappearance: Its market value to net asset value ratio (mNAV) has dropped to 0.95 times, and the "faith premium" of traditional financial markets no longer exists.
2. Rising financing costs: As the Federal Reserve maintains a high interest rate environment, the coupon rate of convertible bonds has risen from 0.5% to 3.5%, and the dividend rate of perpetual preferred stocks has reached 8.5%, significantly increasing the marginal cost of financing.
As Bitcoin enters the $80,000-$85,000 range and fluctuates, the market begins to question: if it cannot continue to increase its holdings through low-cost financing, is its core growth story coming to an end?
3. Financial Leverage: Debt-Driven Vulnerability
(1) Non-operating financing dependence
MicroStrategy's funds for purchasing Bitcoin rely almost entirely on external financing rather than operating cash flow. Its financing tools include:
• Stock issuance: Cumulative financing exceeds 5 billion USD, but after the stock price falls below 700 USD, the dilution effect will trigger a strong backlash from shareholders.
• Convertible Bonds: A total of approximately $4.2 billion in six convertible bonds maturing between 2027 and 2032, with coupon rates ranging from 0.5% to 3.5%.
• Perpetual Preferred Stock: $710 million preferred stock issued in November 2025, with an annual dividend cost exceeding $60 million
By Q3 2025, the company's cash on hand is only $54.3 million, while its annual interest expenses have exceeded $120 million. In other words, the company has entered a "debt rollover" mode of borrowing to pay off old debts; once refinancing channels are blocked, a liquidity crisis will erupt instantly.
(2) The Critical Point of the Debt Snowball
The danger of a debt-driven model lies in the compound interest effect. Assuming the price of Bitcoin remains at the current level, the company needs to pay each year:
• Preferred stock dividends: 60 million USD
• Convertible bond interest: $120 million
• Software business loss: an average of 30 million US dollars per year
The annual cash outflow exceeds 200 million USD, while its software business generates only 210 million USD in annual revenue and continues to shrink. This means the company must raise at least 200 million USD each year to maintain operations. If the stock price drops by 30% due to market panic, the cost of financing through additional shares will rise by 50%, creating a "death spiral of raising funds leading to further declines, and further declines necessitating more funds."
4. MSCI Index Exclusion: The Trigger Point of Systemic Risk
(1) Core Shock Mechanism
In November 2025, MSCI announced a consultation on whether "companies with over 50% of their assets in digital assets should be excluded from the index." If the resolution passes in January 2026, MicroStrategy will face forced selling from passive funds.
According to estimates by JPMorgan Chase:
• The MSCI USA Index alone will trigger a passive sell-off of $2.8 billion.
• If the S&P 500, Nasdaq, and Russell indices follow suit, the total outflow could reach $9 billion.
The characteristics of passive capital are mechanical execution, cost insensitivity, and disregard for fundamentals. This sell-off will be independent of Bitcoin prices, purely based on index rules, thus causing an asymmetric impact on stock prices.
(2) The initiation of the negative feedback loop
The risks caused by index exclusion have a chain reaction:
1. Stock price declines → mNAV further discounts → proactive funds reduce positions in advance to hedge risks
2. Stock price falls → Financing window narrows → Unable to continue increasing holdings of Bit → Growth story ends
3. Difficulty in financing → Market doubts its ability to repay debt → Credit spreads widen → Costs of newly issued debt soar
This is the first time the traditional financial system has questioned the sustainability and legitimacy of the corporate hoarding model through a "systemic exclusion" approach. After the announcement, ETF managers tracking MSCI have indicated they will "actively reduce the weight of MSTR," and systemic distrust is becoming a self-fulfilling prophecy.
5. Risk Accumulation: From Single Point to Systemic Qualitative Change
The current challenge facing MicroStrategy is not isolated risk, but a resonance of multiple pressures:
Layer One (Market Layer): Bitcoin is entering a mid-term consolidation, with the $80,000 support in doubt. If it falls to $70,000, the company's floating profit will shrink by 70%.
Second layer (financing layer): The first $1 billion convertible bond matures in 2027. If the stock price is below $500 at that time, creditors may demand cash payment.
Third layer (Institutional layer): MSCI exclusion, SEC strengthens disclosure regulation of crypto assets, traditional financial accommodation space shrinks.
Fourth layer (Psychological Layer): The market shifts from "faith premium" to "risk discount", and institutional positions change from strategic allocation to trading positions.
The interaction of fourfold pressure forms a complete negative feedback chain of **"decline → discount → financing difficulties → inability to increase holdings → story shatters → further decline"**. Historically, the collapses of LTCM and Lehman Brothers both began with "high leverage + positive feedback reversal". Although MicroStrategy has not reached the level of a systemic financial institution, its status as a "Bitcoin shadow ETF" gives it the ability to transmit risk to the crypto market.
6. Path and Timeline of the Explosion
(1) It won't explode immediately, but it already has the conditions to do so.
It must be clear: MicroStrategy has no repayment crisis in the short term, and its preferred stock terms allow for deferred dividends, while the convertible bonds have a conversion option. However, it has for the first time established a complete path to "explosive failure":
Short term (by the end of 2025): If Bitcoin falls below $75,000, the stock price will drop below the psychological level of $600, triggering technical sell-offs.
Mid-term (Q1 2026): MSCI exclusion resolution takes effect, passive funds begin to withdraw, and stock prices may fall to the range of 450-500 dollars.
Long-term (2027): The first convertible bond matures, and if the Bitcoin price is below its average cost at that time, there will be a dilemma between "selling Bitcoin to repay debts" and "default."
(2) Real Trigger Point
1. Financing chain break: If the next issuance of preferred shares is subscribed to less than 70%, the market will determine that its financing capacity is exhausted.
2. Debt Default: If cash is below 30 million USD and credit cannot be obtained, it will trigger the technical default clause of the convertible bond.
3. Forced sale of tokens: If the stock price remains below $200 for 30 consecutive trading days (currently around $1800), some debt covenants allow creditors to demand repayment in Bit.
Seven, the systemic impact on the cryptocurrency market
If MicroStrategy experiences a crisis, its impact will far exceed that of a single company:
First, Bitcoin is facing "non-economic selling pressure". Forced selling is different from bearish selling; its motivation is liquidity survival, often disregarding costs. If the 650,000 Bitcoins held by the company are reduced over 12 months, the average monthly selling pressure would be 54,000 coins, which is equivalent to 40% of the current monthly output of miners, severely disrupting the supply and demand balance.
Second, the corporate hoarding model is facing a legitimacy crisis. Public companies like Riot Platforms and Marathon Digital collectively hold over 300,000 Bits. If regulations tighten corporate hoarding standards due to the MicroStrategy case, the entire "Bit treasury" narrative will be severely impacted.
Third, the reassessment of the tolerance of US stocks towards crypto assets. Currently, the scale of indirect allocation of Bitcoin through ETFs and companies holding cryptocurrencies in the US stock market exceeds 50 billion USD. The risk exposure of MicroStrategy may trigger institutions like the SEC and ISS to strengthen scrutiny, requiring higher capital adequacy ratios and risk disclosures, thereby increasing the participation costs for institutions.
VIII. Conclusion: Not a scam, but indeed a "gray rhino".
MicroStrategy is not a Ponzi scheme; its holdings are real, disclosures are transparent, and the founder's beliefs are firm. However, it is a "massive leveraged beta" that is mythologized in a bull market and reveals its fragility in turbulence. Its risk does not lie in fraud, but in the pro-cyclical nature of the model itself—it can only survive in the triple harmony of "Bitcoin rising + low-cost financing + institutional faith"; if any one note goes out of tune, it will trigger systemic discord.
The next six months, especially around the MSCI decision in January 2026, will be a crucial testing period for its survival. Investors must be clear that holding MSTR does not equal holding Bitcoin, but rather is a complex combination of "leveraged Bitcoin + financing risk + institutional risk." When the mNAV falls to 0.95, the market has already voted with its feet—it is no longer a high-quality asset, but a risky asset.
For the cryptocurrency industry, the lesson from MicroStrategy is that any model that ties decentralized assets to centralized leverage will inevitably face systemic friction and periodic liquidation. True Bitcoin believers should perhaps pray for a smooth transition for this company, as its collapse would deliver a significant blow to the narrative embraced by the entire institution.
Risk Disclosure: This article is based on public information analysis and does not constitute investment advice. The cryptocurrency market is highly volatile, and leverage risk is extremely high. Investors should make independent decisions and bear the risks themselves.
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