Author: Chloe, ChainCatcher

Since October, MSTR has fallen by about 50%. After reaching a peak of $457 last year, it has significantly retreated, far underperforming the market. MarketBeat data shows a 12-month low of about $155.61 and a high of over $450. It has now entered a relatively undervalued low range with extremely high volatility.

Why has MSTR's stock price remained sluggish for months, not only underperforming the market but even performing worse than Bitcoin itself? This has led the market to question whether the flywheel effect of Bitcoin has already failed.

Enjoy double the joy in a bull market, but also bear double the pain in a bear market

The sharp decline in Bitcoin prices is the most direct trigger. Since its peak on October 6, Bitcoin has dropped about 31%, and Strategy, which holds about 650,000 Bitcoins (accounting for 3.1% of the total), is naturally not immune. MarketWatch further calculates that the correlation between BTC and MSTR is close to 0.97, meaning they are almost in a one-to-one relationship. However, due to the leverage effect, MSTR's volatility is further amplified; while Bitcoin drops 31%, MSTR has fallen over 50%.

The market also questions whether the flywheel model that MSTR relies on is failing. Strategy's mNAV is currently 1.15. According to CryptoSlate, the market is only willing to pay a 15% premium over the value of its Bitcoin holdings for MSTR. Once mNAV falls below 1.0, continuing to issue stock will become highly dilutive. Bloomberg also pointed out that as Strategy's market capitalization is only slightly above its Bitcoin holding value, the premium has been severely compressed, and this positive feedback loop is breaking down.

Additionally, Strategy only purchased 130 Bitcoins between November 17 and November 30, spending $11.7 million, which is a negligible amount for a company holding about 650,000 Bitcoins. This indicates that Strategy has realized that large-scale stock issuance at the current premium level would harm rather than enhance shareholder interests, thus actively stepping on the brakes.

The Financial Times also noted that after MSTR's stock price fell from its peak, its performance has started to lag behind Bitcoin itself, raising doubts about whether the equity vehicle can still add more value than simply holding BTC. Especially with the launch of Bitcoin spot ETFs, allowing investors to more conveniently allocate Bitcoin directly, why should they bear the debt burden, management risks, and potential equity dilution associated with MSTR?

Furthermore, this year, Strategy has financed its Bitcoin purchase plan by issuing a large number of convertible bonds and high-yield preferred stocks, which have brought a heavy fixed payment burden. A Seeking Alpha analysis report pointed out that this has raised the annual preferred stock dividend burden to hundreds of millions of dollars; according to CryptoSlate's estimates, this figure could reach $750 million to $800 million annually, not including the interest on convertible bonds. The problem is that while MSTR's traditional software business can still generate over $100 million in revenue each quarter, it cannot independently support this growing preferred stock dividend burden.

This is precisely the core reason the company announced the establishment of a $1.44 billion cash reserve.

In response to concerns about selling coins for cash, Strategy establishes a dollar reserve

On Monday, Strategy announced the establishment of a $1.44 billion dollar reserve, specifically for paying preferred stock dividends and existing debt interest, aiming to address various external doubts about whether Strategy would "sell coins for cash" to pay preferred stock dividends.

According to Strategy's press release, the $1.44 billion comes from the proceeds of selling Class A common stock according to the company's market issuance plan. The current plan is to maintain a reserve size that covers at least 12 months of dividend payment needs and 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.

This time, Strategy has invested most of the funds raised from selling stock into dollar cash reserves, rather than buying Bitcoin as in the past. It can be said that even Saylor, amid the dramatic price fluctuations, must find more defensive financial operations.

However, even with the reserve news released, the market's reaction remained lukewarm, with MSTR dropping over 11% during the day, marking four consecutive months of declines.

As the company's mNAV remains close to 1 for an extended period, it symbolizes that the original "sell stock to buy coins" flywheel strategy has officially failed. CEO Phong Le previously admitted that if financing runs dry, the company may ultimately consider selling Bitcoin.

The reserve temporarily alleviates market concerns, but capital structure risks remain

According to independent researcher Spreek, the comprehensive decline in mNAV and the bottleneck in Bitcoin strategy indicate that Saylor has already begun to turn to debt instruments as a new financing channel this year, which are less directly linked to stock prices, aiming to avoid further depressing MSTR's price and mNAV.

Spreek stated that STRC directly targets retail investors, emphasizing stability and high returns, but neglects underlying risks, "STRC is more like LUNA and UST than MSTR's previous products." However, MSTR's balance sheet is still much stronger than that of Luna back then, but the reflexivity mechanism still exists: every time Strategy raises the product interest rate, the annual cash dividend expenditure significantly increases, and considering selling Bitcoin to raise funds may just be a matter of time.

Research predicts that Strategy has roughly three foreseeable trajectories. First, it may choose to converge leverage, shift to a conservative stance, stop issuing STR series preferred stocks or debt on a large scale, reduce the scale and speed of Bitcoin purchases, and maintain reserves without selling BTC, even if this means the stock price will operate long-term below mNAV, essentially defaulting on the end of the Bitcoin flywheel, with MSTR trading at a discount for a long time.

Another path relies on external macro momentum, such as liquidity injections from the Federal Reserve or political factors driving a resurgence in Bitcoin, allowing Saylor to temporarily escape the quagmire and restart the old script: issuing more stocks and convertible bonds when the stock price rebounds to increase Bitcoin holdings at high levels. However, this is mostly just delaying the inevitable, as the structural flaws in the company's cash inflow will always lead to buying at highs, keeping Saylor at the breakeven point. From the perspective of Bitcoin, this is the most favorable development recently, which can alleviate selling pressure and support prices.

The third path is to maintain operations through the accelerated expansion of preferred stocks like STRC, attracting retail funds by raising yields, pushing the debt scale to tens of billions or even hundreds of billions of dollars. This may seem better than directly selling stocks or Bitcoin in the short term, avoiding immediate market shocks and temporarily reviving the flywheel, but the previously mentioned reflexivity mechanism is likely to be gradually amplified: as payment obligations swell, the current annual dividend is nearly $750 million, which could grow exponentially in the future, and the company will face a heavy burden of dollar debt, making selling Bitcoin to raise funds for repayment potentially an unavoidable last resort.

According to Bloomberg's latest report, Strategy's CEO Phong Le stated that Strategy is considering lending out some tokens. This means that Strategy hopes to obtain new sources of income through lending, with annual interest rates typically between 3-5%, but this is still far from being realized.

Now, Strategy's choice to deploy a $1.4 billion reserve may be a concession based on adhering to the strategy of not selling Bitcoin. However, in facing reality, Strategy has also simultaneously revised down its full-year financial forecast and key performance indicators, setting the year-end Bitcoin price between $85,000 and $110,000; the full-year dollar revenue target for Bitcoin has been significantly lowered from the original $20 billion to $8.4 billion to $12.8 billion, while Strategy further estimates that the full-year net profit will fall within a huge range of a loss of $5.5 billion to a profit of $6.3 billion, a significant reduction from the previously estimated full-year net profit of $24 billion.

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