The strategy will transition from extreme leverage in accumulating coins to a "BTC + USD dual reserve" model.

Written by: ChandlerZ, Foresight News

On the evening of December 1, the three major U.S. stock indices collectively closed lower, with the Dow Jones down 0.89%, the Nasdaq down 0.38%, and the S&P 500 down 0.53%. Most popular tech stocks fell, with Broadcom down over 4%, and Google and Microsoft down over 1%. Meanwhile, the cryptocurrency market faced a severe sell-off, with Bitcoin briefly dropping below $84,000.

At the same time, U.S. crypto stocks also fell, with Coinbase (COIN) down 4.76%, currently at $259.84; Strategy (MSTR) down 3.25%, currently at $171.42; Circle (CRCL) down 4.99%, currently at $75.94; Bitmine (BMNR) down 12.62%, currently at $28.94; and SharpLink Gaming (SBET) down 9.60%, currently at $9.60.

Some analysts pointed out that from a funding perspective, although the market generally expects the Federal Reserve to start cutting interest rates next week, related ETFs only saw slight net inflows, remaining overall weak and unable to support the judgment of "significant institutional capital returning." At the same time, signals of tightening monetary policy in Japan are also exacerbating market anxiety: the yield on 2-year Japanese government bonds has surpassed 1% for the first time since 2008, prompting investors to reassess whether major global central banks can continue to maintain a consistent pace in easing.

In this environment, even if the Federal Reserve releases dovish signals, it is difficult to offset the tightening expectations from other economies, and the overall policy direction remains tight, providing a rationale for institutional investors to continue reducing their Bitcoin exposure.

Notably, Strategy announced in its latest announcement that the company purchased 130 Bitcoins between November 17 and November 30, totaling $11.7 million. As of November 30, Strategy held approximately 650,000 BTC, with a cumulative cost of about $48.38 billion, translating to an average price of $74,436.

This is Strategy's first increase in holdings after a week of not accumulating Bitcoin, with the funding source still coming from the proceeds of common stock sales. However, the market believes that the recent increase in holdings appears quite limited, coupled with the significant drop in Bitcoin prices. Some investors interpret this as a sign that Strategy's model for high-intensity coin accumulation seems to be showing signs of stagnation, and they question whether it can pay dividends on various preferred stocks.

Strategy's New Reserve Fund: Exchanging Equity Financing for a Safety Period

Strategy faces market skepticism regarding its announcement to establish a $1.44 billion USD reserve fund, specifically for paying dividends on preferred stocks and interest on existing debts. The source of this reserve fund comes from the proceeds of the company's issuance of Class A common stock according to its market issuance plan.

Strategy plans to maintain a reserve size that covers at least 12 months of dividend payment needs and intends to gradually strengthen the reserve size, with the ultimate goal of building a buffer fund that can cover 24 months or more of dividend payments. The existence, terms, and size of this reserve fund are entirely at the company's discretion, and Strategy will dynamically adjust the reserve size based on market conditions, liquidity needs, and other factors.

Despite this, the announcement did not effectively quell market concerns. Strategy's stock price fell over 10% during intraday trading on December 1, hitting a low of $156.

At the same time, the company also announced that, given the current situation, it has updated its earnings expectations for the fiscal year 2025. It estimates that if the Bitcoin price range at the end of 2025 is between $85,000 and $110,000, the target ranges for Strategy's fiscal year 2025 revenue, net income, and diluted earnings per share are as follows: fiscal year 2025 revenue is expected to be between $7 billion and $9.5 billion, net income is expected to be between $5.5 billion and $6.3 billion, and diluted earnings per share for common stock is expected to be between $17.0 and $19.0.

This reserve arrangement actually reflects a turning point in Strategy's (MSTR) asset allocation logic. Over the past four years, the company's coin-holding model has been to continuously finance in the capital market through the issuance of common stock, preferred stock, and convertible bonds, and then convert almost all the raised funds into Bitcoin holdings. The core feature of the balance sheet is its high singularity.

However, after establishing the USD reserve, this funding path has seen its first conscious diversion. The company still relies on equity and debt instruments for external financing, but the funds are no longer all directed towards Bitcoin positions; instead, they are split into two parts. One part continues to be used to increase BTC holdings to continue the DAT strategy; the other part is explicitly reserved in USD, entering a dedicated reserve fund for paying dividends and interest, to stabilize cash flow for the next one to two years.

The former can be seen as an interest-free long-term value reserve, while the latter assumes a short-term payment function, providing cash security for the company's various equity and debt instruments.

At the market level, this adjustment can also be seen as a response to a long-standing external concern: whether Strategy would be forced to sell its holdings due to cash flow pressure amid significant fluctuations in Bitcoin prices and tightening financing conditions, or even face insolvency risks. The company attempts to convey to investors that, within a foreseeable timeframe, maintaining its solvency does not have to rely on "selling coins." Although previously, Strategy's CEO stated that Bitcoin would only be sold if mNAV fell below 1 and financing was not possible.

Market Views

Wall Street broker Benchmark stated that the Bitcoin price pullback has once again raised routine concerns about the survival capability of major Bitcoin holder Strategy, but the company believes these concerns are merely noise that inevitably arises during Bitcoin downturns. In a report released on Monday, analyst Mark Palmer pointed out that critics confuse short-term volatility with real repayment risks, ignoring the logic behind its balance sheet aimed at maximizing Bitcoin leverage. Strategy holds approximately 649,870 Bitcoins (worth $55.8 billion) while carrying $8.2 billion in ultra-low-cost convertible bonds and $7.6 billion in perpetual preferred stock, with manageable debt. The company's structure is far more robust than critics claim, and perpetual preferred stock is a core competitive advantage that distinguishes Strategy from other digital asset holding companies.

Regarding the crisis threshold issue frequently mentioned in the market, Benchmark pointed out that Bitcoin would need to drop to around $12,700 and remain at that low level to trigger substantial risks, which represents a decline of 86%. In the current institution-led market, the agency believes this is extremely unlikely to occur. Palmer reiterated his "buy" rating on the stock and a target price of $705 (based on a hypothetical Bitcoin price of $225,000 in 2026), stating that the recent pullback has not changed his view.

Ki Young Ju, founder and CEO of CryptoQuant, stated that it would not be wise for Strategy to sell BTC when mNAV (the ratio of the company's value to the value of its held Bitcoin) is below 1. While this move might benefit MSTR shareholders in the short term, it would ultimately harm BTC and, in turn, damage MSTR's interests, creating a death spiral.

Sandeep Nailwal, co-founder of Polygon and CEO of the Polygon Foundation, expressed hope that Strategy (MSTR) would not become the protagonist of a "LUNA disaster" in this cycle. The industry can no longer withstand another publicly staged death spiral involving Wall Street and retail investors. Hopefully, Michael Saylor can perform some "mystical magic" from Wall Street to stabilize the situation.

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