Bitcoin Treasury firm Strategy (MSTR) said it could ride out a potential drop in the price of the largest cryptocurrency to $8,000 and still pay off its debt.
“The strategy can withstand a drop in the $BTC price to $8K and still have enough assets to fully cover our loans,” the Michael Saylor-led company said on X.
The company, which holds more Bitcoin than any other publicly traded company, has accumulated 714,644 BTC since adopting it as a treasury asset in 2020, worth about $49.3 billion at current prices.
Over the years, it has piled up Bitcoin through debt, a move echoed by peers like Tokyo-listed MetaPlanet (3350). It is owed approximately $6 billion – the equivalent of 86,956 BTC – against Bitcoin holdings more than eight times larger.
Although these debt-financed Bitcoin purchases were widely encouraged during the crypto bull run, they have become a liability after the token fell from an October peak of more than $126,000 to around $60,000.
If the strategy is forced to liquidate its Bitcoin holdings to repay the loan, it could flood the market and send prices even lower.
In Sunday’s post, the strategy assured investors that its Bitcoin holdings would still be worth $6 billion even at an $8,000 BTC price, which is enough to cover its debts.
The company said it does not need to repay all of its debt at once, as the due dates are spread over 2027 and 2032.
To further ease concerns, Strategy said it plans to convert existing convertible debt into equity to avoid issuing additional senior debt. Convertible debt is a debt that the lender can swap for MSTR shares if the share price rises high enough.
Not everyone is affected
Remain skeptical.
Critics like the pseudonymous macro asset manager Capitalist Exploits say that while $8,000 Bitcoin could technically cover $6 billion of net debt, the strategy reportedly paid about $54 billion for its reserves, an average of $76,000 per BTC. A slide to $8,000 would result in a huge loss on $48 billion of papers, making balance sheets look ugly to lenders and investors.
The observer argued that cash on hand would cover only 2.5 years of debt and dividend payments at current rates, and the software business draws only $500 million per year. That’s too little to handle $8.2 billion in convertible bonds and $8 billion in preferred shares, which demand huge, ongoing dividends like endless interest bills.
This means that refinancing may not be easily available if Bitcoin drops to $8,000.
“Traditional lenders are unlikely to refinance a company that has significantly depreciated primary assets, conversion options that are economically worthless, worsening credit metrics, and a stated policy of holding BTC long term (limiting collateral liquidity),” the observer said in a post on X.
Dump on retail investors
Anton Golub, chief business officer of crypto exchange FreedX, called the “equitizing” move a planned “dump on retail investors.”
Buyers of the strategy’s convertible bonds have primarily been Wall Street hedge funds, who are not Bitcoin fans but “volatility arbiters,” he said.
Arbitrage involves hedge funds profiting from discrepancies between the expected or implied volatility of convertible bond embedded options and the actual volatility of the underlying stock.
Funds typically buy cheap convertible bonds and make bets against or “short” the stock. This setup helps them avoid large price swings, while earning money from bond interest, volatility and “pull-to-par” boosts, where deeply discounted bonds move toward full value at maturity.
According to Golub, the price of the strategy’s convertible bonds was subject to small fluctuations. But stocks soared wildly, giving hedge funds a chance to make money through arbitrage: buying bonds cheaply while betting against the stock.
This setup worked beautifully when shares traded above $400, which was the trigger for bondholders to convert the debt into stock. Hedge funds closed their shorts, bonds disappeared through conversions, and strategies avoided cash payouts.
At $130 per share, the conversion doesn’t make sense. Hedge funds will therefore demand full cash repayment when the bonds mature, potentially putting pressure on the strategy’s finances.
Golub expects the company to respond by reducing shares.
“The strategy will be: diluting shareholders by issuing new shares, selling retail through ATM sales, raising cash to pay hedge funds,” he said in an explanatory post on LinkedIn.
“The strategy only looks great during a Bitcoin bull market,” he said. “In a bear market, the dilution is real and destroys MSTR shareholders.”