As the pioneer of the "Bitcoin treasury company" model, Strategy (formerly MicroStrategy, MSTR) is undergoing an unprecedented market test.
In August, Strategy's stock price accumulated a drop of 16.8%, erasing most of the long-standing premium the company enjoyed relative to its Bitcoin holdings.
Market concerns primarily stem from Strategy's sudden shift in financing strategy. The company originally planned to raise funds through preferred shares to buy Bitcoin but recently raised only $47 million, far below expectations. To make up for the shortfall, Strategy restarted its common stock issuance plan, breaking its previous promise to limit dilution.
This strategic reversal has not only damaged investor confidence but also poses a threat to the entire Bitcoin treasury model. Currently, corporate treasuries emulating Strategy's model collectively hold over $108 billion worth of Bitcoin, accounting for 4.7% of the total supply. If Strategy's premium advantage collapses, the sustainability of this model will be widely questioned.
The Breakdown of the "Treasury Model"
Strategy's business logic was once seen as an innovative case on Wall Street: raising funds by issuing bonds and stocks to purchase Bitcoin, then relying on the market-given premium to continuously roll over and expand.
After this model launched in 2020, it quickly ignited a trend of corporate treasuries allocating digital assets. To date, over a hundred companies globally have followed suit, collectively holding approximately $108 billion in Bitcoin, representing 4.7% of the circulating supply.
But now, this model is facing headwinds.
At the end of July, Strategy promised not to issue shares when the multiple of its Bitcoin holdings (mNAV) was below 2.5, except under special circumstances. However, just two weeks later, this guideline was relaxed, and on August 25th, the company issued nearly 900,000 new shares.
This "broken promise" thoroughly triggered an investor trust crisis, further depressing the premium.
Strategy's stock price is no longer related to its software business but is anchored to its mNAV. In the past, this multiple fluctuated repeatedly between crisis and bull market due to market volatility, for instance, contracting significantly during the Terra-Luna crash and rebounding to 3.4x after Trump's re-election. Currently, the mNAV has dropped to 1.57x, and the decline occurred while Bitcoin's price remained strong, indicating that market confidence in the "treasury model" itself is wavering.
Analysts point out that when a company chooses to issue additional shares while the mNAV is low, it may trigger a "negative flywheel": the falling stock price weakens the ability to buy more Bitcoin, further erodes market confidence, leading to an accelerated compression of the premium.
According to Jake Ostrovskis, Chief Analyst at Wintermute's OTC desk: "The premium decline is a natural reaction to competition and alternative ways to gain digital asset exposure. Additionally, walking back the guidance about not issuing shares below 2.5x mNAV forces the market to re-evaluate the company's strategy in the short term."
Rise of Bitcoin Spot ETFs, Diversification of Assets, Bitcoin Treasury Companies Under Widespread Pressure
It's not just Strategy; Bitcoin treasury companies are generally under pressure.
According to data from Capriole Investments, nearly one-third of publicly listed companies that have Bitcoin on their balance sheets now have stock trading below the value of these reserves. Smaller companies are particularly vulnerable: liquidity constraints make share issuance more painful, and reliance on convertible bonds brings interest burdens and maturity risks.
Charles Edwards, founder of Capriole, said: "What happens if Bitcoin drops 50%? Enthusiasm for treasury companies will wane, mNAV will compress, and hundreds of companies will start questioning their treasury strategy."
Another challenge comes from the rise of spot Bitcoin ETFs. Initially, both Strategies and spot ETFs benefited from the post-US election Bitcoin price rally. However, because the funds offer Bitcoin exposure without the risks associated with corporate governance, leverage, or dilution, the relative advantage of Bitcoin treasury companies is weakening.
Simultaneously, focus is shifting to other digital assets like Ethereum and Solana, which some believe are better suited for decentralized finance. Treasuries focused solely on Ethereum have already deployed over $19 billion.
Although Bitcoin itself has retreated from the highs set earlier this month, it is still supported by institutional allocation. Many newer treasury companies bought in above $100,000; if the market turns, they lack foundational businesses to sustain them.
Hilary Allen, a law professor at American University, noted: "There's nothing behind Bitcoin except sentiment."
