The stock price of Strategy (MSTR.US) has evaporated by over 80% from its high point, causing its valuation to fall below its holding value. Its financing model is facing a test.

As the stock price of Strategy (MSTR.US) continues to plummet, the company's market value has been lower than the value of its holdings in Bitcoin for over seven months in a row. The long-term core valuation indicator mNAV (the ratio of enterprise value to Bitcoin holdings) has now fallen below 1, signaling a severe challenge to the company's business model of sustaining financing to buy Bitcoin. As of Friday, the company, which transformed from an enterprise software company to the world's largest enterprise Bitcoin holder, has seen its stock price plummet by over 80% from its historical high in November 2024. At the same time, the mNAV has fallen below 1, meaning that the total value of the company, including debt and preferred stock, is now lower than the market value of its Bitcoin assets. For a long time, Strategy's ability to continue adding to its Bitcoin holdings has relied heavily on this valuation premium. In recent years, investors have been willing to give Strategy a valuation premium higher than the value of its Bitcoin assets, allowing the company to issue common stock continuously and further issue perpetual preferred stock and other financing instruments to raise funds for continuous Bitcoin purchases, forming a positive cycle of "rising stock price - financing - continued buying of coins - driving valuation increase." This model has also attracted many listed companies to imitate, making Strategy the world's largest corporate Bitcoin buyer. However, when the mNAV falls below 1, cracks begin to appear in this financing flywheel. This not only means that investors are no longer willing to give Strategy a valuation premium higher than its Bitcoin holdings, but also that the company's financing advantage is rapidly disappearing. If common stock cannot maintain a premium, preferred stock continues to trade at a large discount, and financing costs continue to rise, the company's ability to continue buying Bitcoin through capital markets in the future will be questioned. The importance of this change lies in the fact that the increasing demand for Bitcoin in recent years is increasingly dependent on institutional investors, including Strategy. As the market begins to worry about whether Strategy can continue to finance at low costs in the future, investors are not only reevaluating Selet's strategy of continuing to buy Bitcoin, but also the important source of incremental funds for the entire Bitcoin market. Indeed, in August of last year, Strategy adjusted its financing strategy, relaxing the relatively strict financing conditions and allowing the company to issue common stock financing when it is "deemed advantageous to the company." In addition, the company has also stated that if the mNAV falls below 1, it does not rule out the possibility of repurchasing common stock through debt, but ultimately this plan depends on whether the debt market is willing to continue supporting financing. Meanwhile, the STRC perpetual preferred stock issued by Strategy has recently continued to fall below face value, reflecting the market's increasing concern about the company's growing interest and dividend burden and whether continuous financing to buy Bitcoin can still create value for shareholders. Paul Howard, Senior Director of Wincent, stated that STRC is essentially a leveraged product that is both prone to lag behind stock prices during market volatility and could potentially become a catalyst for further market sell-offs. "When an institution holds a high percentage of Bitcoin, this is not just a stock issue, but a structural risk." Despite market doubts, Selet himself seems to remain optimistic. He stated on social media on Friday that the company will continue to execute its established strategy. Strategy did not respond to media requests for comments. Originally, Strategy was just a small enterprise software company. In 2020, Selet announced a large-scale conversion of the company's cash reserves into Bitcoin to hedge against inflation risks, a decision that shocked Wall Street at the time. As the price of Bitcoin continued to rise, the company, formerly known as MicroStrategy, gradually became an important channel for investors to indirectly allocate Bitcoin. The company's stock price surged over 3500% after the strategic transformation, far exceeding major global stock indices at the time. Subsequently, Selet continued to raise funds through the issuance of common stock and various capital market instruments to purchase Bitcoin on a large scale. However, this model also raised questions from some Wall Street insiders. Renowned short-selling manager Jim Chanos had long taken an arbitrage strategy of "shorting Strategy and going long Bitcoin," believing that with the launch of spot Bitcoin ETFs, investors have more direct and cost-effective channels to invest in Bitcoin, and the high valuation premium enjoyed by Strategy in the past would eventually be compressed. As the company's stock price fell by about 50% from its peak in 2025, Chanos closed out this arbitrage trade in November last year. As of June 21st, Strategy holds a total of 847,363 Bitcoins. Based on a Bitcoin price of approximately $59,600 at 4:26 pm New York time on Friday, the company's holdings are worth about $50.5 billion. At the same time, Strategy's enterprise value (including the nominal value of debt and perpetual preferred stock) is about $50.4 billion, almost equal to the value of its holdings, which also means that the mNAV has fallen to about 1. The market's biggest concern currently is that Strategy's large holdings of Bitcoin itself do not generate cash flow, and the free cash flow that the company's software business can contribute is very limited. As future dividend and interest expenses continue to increase, the company may have to sell more Bitcoin to meet its funding needs. Data shows that as of now, Strategy has about $1.4 billion in cash reserves, while the expected cash outflows for dividends and interest over the next year is about $1.7 billion, and the cash reserves are not sufficient to fully cover the related funding needs, further exacerbating concerns about the sustainability of its financing model.