Strategy Changes the Rules of the Game During a Bear Market. What Will Happen to the Company's Shares?

Strategy has decided to fundamentally overhaul the way it presents its key financial metrics.

The company's executive chairman, Michael Saylor, and his team have opted to move away from the previous metrics based on the gross value of Bitcoin assets held, in favor of their net equivalents. The primary goal of this move is to provide shareholders holding common stock with a much clearer picture of the company's actual exposure to the leading cryptocurrency, taking into account the growing obligations from preferred shares and convertible debt.

This change in approach is part of a broader pattern of behavior, in which Strategy regularly modifies its guidelines in response to market turbulence that has persisted since October of last year. The situation is further complicated by the fact that its flagship preferred shares, STRC, are trading close to $85 and have failed to return to their target nominal value of $100 since mid-May. At the same time, Bitcoin is hovering around $65,000, which represents a drop of half from its previous peak, while the valuation of MSTR shares has fallen by as much as 84% compared to the peak recorded in November 2024.

The foundation of the new methodology is the net reserve ratio, which is currently estimated at $36.6 billion. To arrive at this figure, Strategy starts with the total value of Bitcoin reserves held, which amounts to $55.6 billion, consisting of 843,775 Bitcoins, and adds $3.2 billion held in cash reserves. However, from this sum, the company subtracts $6.8 billion in convertible debt and $15.5 billion in preferred shares. The amount of $22.3 billion represents higher-priority claims that, in the event of the company's liquidation, take precedence over the claims of common stockholders.

The new mNAV formula currently compares the price of MSTR shares directly to the value of the Net Bitcoin Per Share metric, maintaining a constant accrual threshold of 1.0x, while the amplification ratio serves as a capital multiplier showing how the capital structure leverages shareholders' exposure to Bitcoin. This means that the previously high market premium has flattened, and investors have received a more realistic benchmark for assessing whether new share issuances truly benefit existing shareholders.

According to the newly introduced methodology, if MSTR shares are trading above the 1.0x threshold, each new issuance of securities increases the number of Bitcoins per share for all investors. This pattern is based on a simple ratio of the MSTR share price to the Net Bitcoin Per Share metric, determining whether the company's securities are priced at a premium or a discount when accounting for debt and preferred shares. Additionally, the company has introduced the concept of a floor annual return rate for Bitcoin, which is the minimum sustainable rate of increase in the cryptocurrency's price during the duration of the credit structure, preventing the need for restructuring. Currently, this rate stands at 3.22% per annum, meaning that it is sufficient for Bitcoin to grow at this minimum rate for Strategy to indefinitely finance all its interest and dividend obligations solely from the profits generated by its held cryptocurrency. These changes complement additional market indicators, such as the premium relative to the 200-week moving average or the widely tracked fear and greed index.

Additional analyses indicate that the annual cost of servicing debt and dividends consumes about $1.8 billion, forcing the company to maintain a substantial cash reserve. However, this mechanism creates a situation where investors holding common shares bear significantly higher risks during downturns, as the amplification of valuation works both ways, magnifying gains during bull markets and losses during sell-offs.

The ongoing bear market in digital assets calls into question the previous business model based on continuously incurring debt to purchase Bitcoins. For a long time, Strategy's model relied on the assumption that capital markets would continually reward the company for accumulating digital gold. However, as the annual return on shares has dropped by over 77%, investors have begun to scrutinize the company's balance sheet more closely.

According to many market observers, the new communication aims to prevent institutional funds from selling off shares, which expect hard data and precise calculations of liquidation risk. It is worth noting that the pressure on Saylor's company is increasing as the price of Bitcoin declines, although the recently recorded rise to around $65,000 has provided temporary relief to shareholders. From the perspective of building an industry portfolio, analysts indicate that Strategy's case may set a precedent for other publicly traded companies considering incorporating cryptocurrencies into their treasury reserves. Although Bitcoin remains the financial foundation for the company, with a total holding exceeding 843,000 units, the division of claims clearly shows that a significant portion of these assets serves as collateral for financial institutions and creditors. Experts point out that managing such substantial debt in a volatile market requires not only precise financial mathematics but also immense trust from the capital market. Time will tell whether the change in valuation methodology will allow the company to maintain its leadership position and survive the tougher market period before the next wave of growth arrives.

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