Summary Strategy has seen its market-adjusted net asset value dip to 1.16x as BTC prices dropped 24% from their 52-week highs. MSTR's most recent BTC purchase brought its total to 650,000, currently valued at around $61 billion at an average price of $74,436 per BTC. The company faces an annual coupon bill on its universe of preferreds of around $807 million, ramping up the risk of a BTC winter. Strategy ( MSTR ) faces a dip in its yield and the specter of a crypto winter that could see the Bitcoin ("BTC") treasury company face headwinds on the quarterly coupon payments of its expanding universe of preferreds. MSTR has four USD-denominated preferred shares, and recently issued its first EUR-denominated preferred shares in November. The company would end up selling 7.75 million of the EUR 10.00% Series A perpetual preferreds at 80 EUR per share for net proceeds of around EUR 608.8 million, or $702.2 million . MSTR has built and refined a strategy of issuing USD-denominated preferred shares with a blend of coupons from 8% to 10% to buy BTC. The shift to EUR came on the back of the company's prior statement to expand its capital raising efforts globally. MSTR also has an ongoing common stock at-the-market offering program, with its share count growing year-over-year by 60% during the fiscal 2025 third quarter to 315,393,000. Strategy Fiscal 2025 Third Quarter Form 10-Q Data by YCharts MSTR was most recently rated junk at " B- " by S&P Global Ratings, a single notch above "CCC+", with the rating agency highlighting the firm's low liquidity profile as a core driver of the junk rating. This was offset by no near-term debt maturities and a financing model that leans heavily on equity rather than credit. MSTR's developed a model called market-adjusted net asset value ("mNAV"), which captures the company's enterprise value in relation to the value of its BTC holdings. MSTR's most recent purchase was for $11.7 million worth of BTC, to bring its aggregate BTC holdings to 650,000. These were purchased for an average price per BTC of $74,436, and are currently valued at $61 billion, with BTC trading hands for $93,844 per BTC. This represents a healthy double-digit 20.68% average return for MSTR. The recent BTC low meant MSTR's current margin of safety before its holdings become a paper loss is volatile, ramping up the prospect of the preferreds MSTR is heavily dependent on seeing enhanced selling pressure. I last covered MSTR in May when BTC was looking to make a new 52-week high. STRK, The BTC Dip Spiral, And Liquidity Strategy Critically, the company spent $140 million in the third quarter on servicing its universe of preferreds. This universe has expanded with the issue of the EUR-denominated preferreds, but is set against a core software business that has become a footnote following MSTR's push to become a BTC treasury company. MSTR is in a position where it has to continue to issue new preferreds, take on debt, or sell more of its equity in the capital markets to maintain payments to the holders of its fixed-income securities. The company held total cash and short-term investments of just $56.20 million at the end of the third quarter, against what's set to be an annual coupon bill on its universe of preferreds of around $807 million . Data by YCharts However, MSTR just announced the establishment of a $1.44 billion USD reserve to manage heightened downside BTC volatility after the cryptocurrency fell 24% from its 52-week high. The most salient always-on risk for MSTR preferred holders centers on a BTC dip spiral. Holders of these are cognizant that MSTR cannot make payments from its legacy software business and that the strategy of buying and holding BTC faithfully without selling does not produce company-level cash flows to service the coupons. MSTR needs to maintain access to the capital market to issue new common and preferred shares to maintain payments to holders of the old preferred shares while buying more BTC. The company's mNAV has already dipped to 1.16, eliminating a figure that once stood above 2x, and providing MSTR with less leeway to tap its commons. Strategy QuantumOnline The 8.00% Series A Perpetual Strike Preferreds ( STRK ) pays out an $8 per share annual coupon, trading hands for $86.25 per share for a 9.30% current yield. These are not callable, forming a forever income security where MSTR would see the coupon payments accrue as a liability on its balance sheet in the event the coupon was suspended. STRK currently trades at a 14% discount to its $100 per share liquidation value, or for around 86 cents on the dollar. MSTR's mantra to never sell a single BTC will be tested in the event its mNAV dips below 1x, and as it faces $800 million in annual liabilities to its preferred holders. In this event, the company would find it harder to tap the capital markets and would likely need to sell BTC, helping spark a continued dip in the cryptocurrency that forces mNAV to continue to invert negatively. This would force MSTR to sell more BTC to meet coupon payments, as the company simply cannot lose access to the capital markets. Hence, the preferreds' coupons are seemingly safe against the USD and BTC reserves, albeit a prolonged BTC winter would likely see STRK's discount dramatically expand. Conclusion MSTR's move to establish a USD reserve that covers 21.4 months of the dividend is an acknowledgment of the threat the BTC dip spiral poses to its business of buying and holding BTC. Saylor once described volatility as a gift to the faithful. This is less of a gift when annual liabilities approach $1 billion from a business model that needs stable access to capital markets to meet these payments. STRK is a hold.
