Introduction to Strategy Inc.’s Bitcoin Ambition
Strategy Inc., formerly known as MicroStrategy, has been at the forefront of building the largest corporate Bitcoin reserve in 2025, leveraging public markets to fund its ambitious goal. However, the scale of this endeavor has led to a clash with the logic of its own stock performance. Initially, the company’s aggressive accumulation strategy, fueled by its appetite for debt and willingness to dilute existing shareholders, has evolved into a structural contradiction that defines the company today.
A Balance Sheet Inflated by Bitcoin
The company has successfully raised $21 billion through seven securities offerings in a single year, significantly increasing its Bitcoin holdings to approximately 641,000 BTC. This figure represents nearly 3% of the asset’s finite supply. However, as the balance sheet reached historic proportions, the stock story began to unravel, leaving the stock 68% below its highs and forcing investors to reevaluate the kind of company they were investing in.
Over the past two quarters, institutions have reduced their exposure from $36.32 billion to $30.94 billion, a $5.38 billion decline driven by broader risk rotation in the market and discomfort with Strategy’s funding model. The company no longer operates like a traditional software developer or technology platform, instead moving almost in lockstep with Bitcoin itself, but with a capital structure that behaves like an experiment in perpetual leverage.
Capital Structure and Investor Concerns
Investors are faced with a company that generates billions of dollars in profits when Bitcoin rises and billions of dollars in losses when it falls. While the volatility was bearable for many, the overlying dilution layer proved unsustainable. The mechanisms underlying Strategy’s transformation show how aggressively the company has pushed its thesis, issuing $11.9 billion of common stock, $6.9 billion of preferred stock, and $2.0 billion of convertible notes to fund its sustained Bitcoin offering throughout the year.
This approach may have been sustainable in a market that rewarded asymmetric exposure to Bitcoin’s uptrend. However, in a year when investors increasingly sought predictable cash flows and balanced operating models, Strategy’s large portfolio structure made it difficult to justify continued exposure. The company’s results are inherently volatile, and dilution is structural rather than cyclical, pushing institutions toward companies with more stable fundamentals and leaving Strategy’s stock as a corporate shell acting as a proxy for Bitcoin.
Strategic Realignment of Custody and Operational Risk
The strategic shift went beyond fundraising, with Blockchain analytics platform Arkham Intelligence reporting that Strategy transferred around 58,000 BTC, about $5.1 billion, to Fidelity Digital Assets in two months. This decision reflects a broader recalibration of operational risk, opting for a multi-provider model that is more in line with the expectations of lenders and credit analysts who prefer diversified custody arrangements.
The change came with compromises, as Fidelity operates a collective custody structure that aggregates customer assets on-chain, improving redundancy and meeting institutional counterparties’ expectations but removing the direct visibility that once allowed analysts to track Strategy’s holdings across identifiable wallet clusters.
MicroStrategy’s Bitcoin Debt Coverage Assessment
As the company’s debt grew, management introduced an unconventional metric to reassure bondholders and defend leverage. The Bitcoin (BTC) Rating strategy measures convertible debt coverage by comparing the market value of the Bitcoin treasury to the face value of the debt. This ratio was designed to simplify the credit conversation by focusing on asset coverage rather than earnings variability.
Early data suggests the buffer is significant, with a coverage of 5.9x at a Bitcoin price of $74,000, which is consistent with Strategy’s total cost basis. Even a significant drawdown to $25,000 only reduces coverage to 2.0x, which is still above the face value of the obligations. However, shareholders see something different, as the BTC rating does not address the dilution required to sustain treasury expansion nor mitigate the volatility that directly impacts quarterly results.
The Limits of the Index System and Conclusion
The company’s unique financial profile interacts awkwardly with index rules, meeting market capitalization and liquidity thresholds for the S&P 500 but struggling with the requirement for four consecutive quarters of positive returns due to its mechanically tied profits to Bitcoin’s price fluctuations. This volatility effectively excludes the company from the index, eliminating a significant pool of passive demand that could support the stock.
In conclusion, Strategy Inc. has achieved something unprecedented by building a vast Bitcoin reserve, diversifying its custodians, and developing a novel debt coverage metric. However, it hasn’t secured a stable equity narrative, with investors facing a capital structure that requires constant dilution to maintain the pace of its accumulation. Creditors feel protected by asset coverage, while shareholders continue to be exposed to profit fluctuations and capital supply decisions, reflecting the tension in the market revaluation. For more information, visit https://cryptoslate.com/strategy-sp500-exclusion-bitcoin-business-model/
