Cryptocurrency market crash "focal point": MSTR reports huge losses, Saylor says open to "selling coins"

As Bitcoin prices fall below key support levels, the turmoil in the digital asset market is intensifying, and Strategy (MSTR), at the center of this storm, is facing unprecedented pressure.

The company, founded by Michael Saylor, confirmed on Thursday that it faced a net loss of up to $12.4 billion in the fourth quarter due to significant impairment of the fair value of its Bitcoin assets. The loss primarily stems from a $17.4 billion unrealized fair value loss resulting from accounting standards requiring mark-to-market valuation.

As Bitcoin dropped below $63,000, Strategy's stock plummeted 17.1% on Thursday. This not only erased all gains made after the U.S. elections but also caused the stock to fall nearly 80% from its historical high in November 2024.

The Bitcoin held by the company is currently valued at approximately $46 billion, with an average purchase cost of $76,052 per coin. This marks the first time since 2023 that the market value of the company's Bitcoin holdings has fallen below its cumulative cost basis.

In the face of the market crash, Michael Saylor admitted during the earnings call that "selling Bitcoin is an option," despite his rallying cry of "HODL" (hold on for dear life) on social media platform X.

What further unsettles the market is that the once-cyclical model of financing Bitcoin purchases through "equity premium" has come to a halt, with the company's cost basis now exceeding market prices for the first time, putting its financial experiment to a severe test.

With MSTR's stock price crashing, convertible bond investors are likely to seek early cash redemption rather than conversion to equity. The first $1 billion redemption may be due on September 15, 2027, with another $6.4 billion potentially due in 2028, bringing the total potential cash demand to $8.2 billion.

The Logic of Financing Bitcoin Purchases is Under Scrutiny

Strategy has served as a high-beta proxy for Bitcoin, with its stock price soaring over 3,500% from 2020 to 2024. However, this engine is built on an unstable foundation. With the launch of spot Bitcoin ETFs, investors now have cheaper and more direct risk exposure, diminishing Strategy's uniqueness.

More critically, the collapse of the valuation premium is evident. Strategy's enterprise value once approached twice the value of its Bitcoin holdings, but this premium has now nearly evaporated. If Bitcoin prices remain at current levels, Strategy's market value needs to drop by about 13% to completely eliminate the premium. Once the mNAV (the ratio of enterprise value to the value of crypto assets) falls below 1, it indicates that the company's market value is less than the value of its holdings, rendering the logic of financing Bitcoin purchases completely ineffective.

During the earnings call following the report, CEO Phong Le attempted to reassure investors, stating, "This is your first downturn, my advice is to hang in there," but this statement sparked anger in the live comment section. Benchmark Co. analyst Mark Palmer pointed out that in the current environment, the market's focus has shifted to how the company can raise funds under challenging conditions

The Balance Sheet is Already in a State of Insolvency

The deterioration of financial data has intensified market concerns about Strategy's ability to repay its debts. Data shows that as of February 1, the company holds over 713,000 bitcoins, with an average cost basis of $76,052. With the trading price of bitcoin far below this cost line, Strategy's balance sheet is already in a state of insolvency.

Strategy carries $8.2 billion in convertible debt, although Saylor emphasized that the company has $2.25 billion in cash reserves, sufficient to cover interest and dividend payments for the next two years, and there is no risk of margin calls, concerns in the market still persist.

Currently, Strategy's convertible bond structure shows different maturity pressure points. The $1.01 billion convertible bond issued in September 2024 has a conversion price of $183.19, and holders can exercise their put option on September 15, 2027. The $3 billion zero-coupon convertible bond issued in November 2024 has a conversion price as high as $672.4, which can be put back on June 1, 2028. Additionally, several convertible bonds with conversion prices ranging from $149.77 to $433.43 will face put pressure in 2028.

S&P Global previously warned in a report that if the price of bitcoin faces severe pressure at the time of debt maturity, it could force the company to liquidate assets at low prices, which would be considered a debt restructuring "equivalent to default."

Phong Le candidly stated in a conference call, if bitcoin drops by 90%, the company will not be able to repay its debts solely by selling bitcoin and will have to seek debt restructuring.

Saylor Sticks to a Bullish Stance

Despite the pressure, Saylor remained optimistic during the earnings call. "We have a cryptocurrency president who is determined to make the U.S. a bitcoin superpower, the world's cryptocurrency capital, and a leader in digital assets," Saylor stated. "You cannot underestimate the importance of gaining support for the industry and digital capital at the highest levels of the political structure."

Saylor also downplayed the threat of quantum computing to bitcoin, stating that it "will not pose a threat for at least another 10 years," and reiterated that this is "FUD" (fear, uncertainty, and doubt). He maintained his consistent position that selling bitcoin remains one of the options to cope with market conditions.

Strategy reiterated on Thursday that it does not expect to generate profits and earnings for the current fiscal year and the foreseeable future. Based on these expectations, the company stated that distributions to perpetual preferred shareholders are expected to be tax-exempt.

However, well-known short-sellers like Michael Burry have issued more severe warnings. According to Bloomberg, Burry reiterated his scrutiny of Strategy this week, warning that a decline in bitcoin could trigger a "death spiral" among corporate holders. This view aligns with long-time critics like Jim Chanos, who have long pointed out the risks of Strategy's reliance on non-earning assets and speculative leverage At the same time, Saylor downplayed the threat of quantum computing to Bitcoin at the conference, calling it "FUD" (fear, uncertainty, and doubt), and stated that this threat would not emerge for at least another 10 years.

Although management attempted to maintain an optimistic tone and described profitability as a distant prospect, investors are facing a harsh reality check as Bitcoin falls below its cost price and financing channels narrow