- Strategy Inc. has become the dominant institutional Bitcoin holder
- Its largest Bitcoin purchases came in the 2024-2025 rally, financed mainly through debt and equity
- Cash reserves offer limited breathing room amid USD1.7bn obligations and bond puts
- A new Bitcoin sale framework suggests conviction may be tested, raising whale-selling risk
Winter is coming. If cryptocurrency were a game of thrones, Michael Saylor would be the undisputed King of Bitcoin. No other person had been so singularly pivotal in issuing the clarion call to buy Bitcoin, lending the balance sheet of Strategy Inc (formerly known as MicroStrategy – perhaps not so “micro” anymore) to back the coin. But in cryptocurrency, kingdoms are never too big to fail, as we have observed over the many high-profile collapses during the winter seasons of this cyclical asset class. When they do, micro risks often translate into macro vulnerabilities, which we think is why paying attention to the weather around this company makes sense for anyone wanting to know if there are any dark clouds forming ahead.
Mammoth in the room. Why should a CIO office dictate Bitcoin strategy just based on the outlook of one entity? In most cases, one company should not decide the fate of an asset class. Then again, this isn’t your grandfather’s asset class (both figuratively and literally). Institutional adoption of Bitcoin was a relatively recent phenomenon – dating back only to 2024 when the US SEC approved spot Bitcoin ETFs. Since then, crypto ETFs have been all the rage, accumulating coin at clips not seen in its short history. But there was one institution that ruled them all; the combined demand of the world’s retail and new institutional money could not exceed the conviction of Michael Saylor and Strategy Inc.; the company today still holds the world’s largest heap of Bitcoin in its treasury.
This time is different? Any asset – taken to extremes – can become a liability at the turn of the winter season. This would, of course, not be Michael Saylor’s first Bitcoin winter, and to his credit he has managed the company well through many past crypto bear markets. Where it appears to be different this time is twofold. Firstly, the largest purchases have occurred after the price uptrend in 2024-2025 – not before – leaving a relatively high average purchase cost of Bitcoin at c.USD75k, vs present levels of c.USD60k. Secondly, these purchases were largely funded by the issuance of equity and debt (Strategy Inc.’s “legacy” business of enterprise analytics software generates miniscule cash flows relative to its Bitcoin purchases). The presence of interest-bearing liabilities now implies that there is a greater cost to holding non-cash generating assets like Bitcoin on its balance sheet and, mind you, Bitcoin is c.96% of Strategy Inc’s balance sheet.
Let’s do the math. By our estimates, recurring payments for Strategy Inc. amount to c.USD1.7bn per annum. There are three ways that the company can pay for their recurring liabilities, either by (a) using existing cash reserves, (b) raising cash via the issuance of more shares/debt/preferred securities, or (c) selling Bitcoin. We think that the issuance of securities to raise cash at this juncture appears remote, seeing as Strategy Inc.’s stock trades below book value, while the preferred securities are also trading below par in a sign that confidence is a little shaken. Based on their announced current cash reserves at USD2.5bn, Strategy Inc. has c.17 months of interest/dividend coverage. While that seems relatively comfortable, what is perhaps less obvious is that the company has also issued convertible bonds with embedded put options, giving the investor the right to sell the bond back to them at par. By our estimates, the total amount of convertible bonds that could be sold back to the company over the next few years is substantial, amounting to c.USD1bn in 2027, c.USD4.9bn in 2028, and c.USD800mn in 2029. Cash reserves alone would not save the day in the years to come.
Tweets are about to be tested. In a sign that the company is preparing for a cash crunch, Strategy Inc. has recently announced a new “Digital Credit Capital Framework”, essentially a board-authorised sale of up to USD1.25bn in Bitcoin to raise cash where necessary. Taking reference to current prices, this implies the sale of potentially more than 20,000BTC over the next few years to meet liabilities. Seeing the market jitters that had occurred when Strategy Inc. merely sold 32 BTC in May 2026, the market may be happier not knowing that these plans are in the works. For a man that once tweeted to “Never sell your Bitcoin”, we believe that this conviction is about to be greatly tested.
Beware the whales. The cryptocurrency markets, while maturing, have always been at risk of the actions of whales that could sometimes completely disrupt the voyages of the innocent participants in their smaller sailboats. This, however, could perhaps be the first time that a financial “sonar” has allowed us to anticipate whale activity before they happen. We think it best to remain conservative in this space, seeing as there could be potential whale selling in the year ahead due to liquidity concerns, which could be amplified under a prolonged crypto winter. Given that the next Bitcoin halving is only anticipated to come in 2028 – beyond Strategy Inc.’s liabilities – the present drought of new catalysts warrants a more cautious approach to the space.
Figure 1: Not so Micro anymore
Source: Strategy Inc, Blackrock, Fidelity, Grayscale, 21Shares, Bitwise, DBS
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