This report is authored by Tiger Research. As Bitcoin prices decline, attention turns to DAT companies that hold the largest amounts of Bitcoin. Strategy is one of the most prominent participants in this group. The key issue is how the company accumulates its assets and how it manages risk amid increased market volatility.

Key Points Summary

• Strategy's static bankruptcy threshold is expected to be around $23,000 in 2025, nearly double the $12,000 level in 2023.
• The company will diversify its financing model in 2024 from simple cash and small convertible bonds to a mix of convertible bonds, preferred stock, and ATM issuances.
• The call options held by investors allow them to redeem early before expiration. If Bitcoin prices fall, investors are likely to exercise this option, making 2028 a critical risk window.
• If refinancing fails in 2028, assuming a Bitcoin price of $90,000, Strategy may need to sell approximately 71,000 Bitcoins. This equates to 20% to 30% of daily trading volume, which would put significant pressure on the market.

1. Questions About Strategy's Stability

The recent decline in Bitcoin has led to a roughly 50% drop in DAT company's stock price. This raises a core question in the market: does Strategy's stability still exist when both its stock price and core assets are declining? Concerns have intensified after JPMorgan pointed out that Strategy may be removed from the MSCI index.

The focus is not just on this stock. Strategy holds a substantial amount of Bitcoin, enough to impact the broader market, far exceeding the scale of typical whales. This raises two key questions.

1. At what Bitcoin price level will Strategy's balance sheet collapse?
2. When and under what conditions can the company impact the market?

This report reviews documents from the U.S. Securities and Exchange Commission (SEC) to determine Strategy's effective bankruptcy threshold, periods of increased risk, and the potential market impact in the event of a stress scenario.

2. Risks Facing Strategy: $23,000 Threshold

Before delving into the analysis, let's clarify the concept of static bankruptcy. Static bankruptcy refers to a situation where a company cannot repay its debts even if all its assets are liquidated.

In simple terms, static bankruptcy occurs when assets are less than liabilities. For example, if Echo Company has a property worth 1 billion won and 100 million won in cash but liabilities of 1.2 billion won, the company is technically insolvent from a balance sheet perspective. DAT Company faces a similar situation. If Bitcoin prices fall below a certain level, the book equity will turn negative, and the company will be unable to repay its debts. This level is known as the static bankruptcy threshold.

To determine Strategy's static bankruptcy threshold, we first examine how the company has accumulated its Bitcoin holdings.

Strategy has viewed Bitcoin as a strategic asset since 2020, but its accumulation model changed after 2023. Prior to this, the company primarily relied on cash reserves and small convertible bonds to purchase Bitcoin. Its holdings remained below 100,000 Bitcoins, and refinancing needs were relatively limited.

Starting in 2024, Strategy's financing approach changed. The company increased leverage by combining the issuance of preferred stock, ATM stock plans, and large convertible bonds to raise funds for purchasing more Bitcoin.

This led to a rapid acceleration in Bitcoin accumulation. This structure created a cycle: the higher the Bitcoin price, the larger the company's market value, and the higher the leverage, which supported more purchases.

The goal remains unchanged, but the funding structure and risk profile have changed. This structural shift has now become a core factor exacerbating Strategy's bankruptcy risk.

Strategy's expected static bankruptcy threshold level for 2025 is around $23,000. Below this level, the value of its Bitcoin holdings will fall below its liabilities, leading the company to be technically insolvent on its balance sheet.

The key point is that this threshold has been rising. In 2023, the company could withstand a Bitcoin price of about $12,000. In 2024, this threshold rose to $18,000, and by 2025, it reaches $23,000. As Strategy increases its Bitcoin holdings, this critical level also rises.

Thus, the $23,000 threshold represents the minimum price required for Bitcoin to operate stably. This means Bitcoin would need to fall about 73% from current levels to trigger bankruptcy risk.

3. Convertible Bonds: The Issue is the Holder's Redemption Rights, Not the Maturity Date

As mentioned earlier, due to the faster growth of liabilities compared to Bitcoin holdings, Strategy's static bankruptcy threshold has risen to $23,000. The next question is how these debts are structured.

Between 2024 and 2025, Strategy adopted a new financing model that combines convertible bonds, preferred stock, and ATM stock plans. Among these tools, convertible bonds make up the largest share and have the most significant impact on the market.

The key is not the size or maturity date of the convertible bonds, but the timing of when holders exercise their redemption rights.

This provision allows investors to request early repayment, and the company cannot refuse. Most large convertible bonds issued in 2024-2025 have redemption dates concentrated around 2028, making 2028 a critical year for Strategy to prove its refinancing capability.

If Bitcoin prices are close to the bankruptcy threshold in 2028 or market conditions worsen, investors are likely to exercise their put options rather than wait for maturity. A wave of put option exercises would require Strategy to raise billions of dollars in cash immediately.

The problem is that nearly all the funds raised through these convertible bonds are used to purchase Bitcoin. If these funds were invested in productive assets that generate cash flow, the company would naturally have a source of funds for repayment. However, the focus on accumulating Bitcoin has left little cash available for redemption.

Therefore, repaying the debt will require selling assets. If Bitcoin prices are low when the options window opens, Strategy may immediately face a liquidity shortage. Forced selling would further depress prices, raise the bankruptcy threshold, and potentially trigger a vicious cycle.

4. Preferred Stock: Why Choose a 10% Dividend Burden

Starting in 2025, Strategy shifted from issuing nearly zero-interest convertible bonds to issuing preferred stock with a dividend rate of about 10%. At first glance, this seems like a more costly option.

However, this decision reflects the growing refinancing pressure in 2027-2028. A significant number of bondholders choosing to redeem their bonds in 2028 will significantly increase mid-term repayment risk. Any sustained cash outflow during this period will heighten bankruptcy risk.

A key feature of preferred stock is that dividends do not need to be paid in cash. The design of Strategy's issuance allows dividends to be paid in stock when needed. This enables the company to raise funds without immediately causing cash outflows and fulfill dividend obligations without using cash. In effect, preferred stock helps Strategy avoid selling Bitcoin during the critical 2027-2028 period.

While a 10% dividend rate may seem high, paying dividends in stock makes it a tool for maintaining liquidity and preventing short-term cash shortages.

However, this structure also brings new challenges. Paying dividends in stock continuously dilutes the equity of common shareholders. Strategy already faces equity dilution from the potential conversion of future convertible bonds, and preferred stock adds another layer of equity pressure.

Preferred stock also enjoys priority in repayment. If the company faces pressure from both debt repayment and operating costs, the repayment to preferred stockholders must take precedence over common stockholders. Although preferred stock does not have a fixed maturity date, its dividend obligations constitute a structural fixed cost and affect the company's actual bankruptcy threshold.

By 2024-2025, Strategy has transitioned from a low-cost convertible bond-based model to a hybrid structure combining convertible bonds, preferred stock, and ATM issuances. This shift has allowed for rapid expansion of Bitcoin holdings in the short term.

5. What Happens if Strategy Fails

If Strategy fails to refinance in 2028, its impact on the market can be estimated through its repayment obligations.

A large volume of convertible bonds issued in 2024-2025 will generate approximately $6.4 billion in potential repayment amounts in 2028. If market conditions worsen and the issuance of preferred stock, ATM issuances, and new convertible bonds cannot proceed, the company will have no choice but to sell Bitcoin.

Assuming a Bitcoin price of $90,000, Strategy would need to sell approximately 71,000 Bitcoins to meet these obligations. This is incomparable to typical institutional sale sizes.

Currently, the average daily trading volume in the spot market is between $20 billion and $30 billion. Selling 71,000 Bitcoins at a price of $90,000 would amount to about $6.4 billion, which represents about 20% to 30% of the daily trading volume. Conducting such a large-scale sell-off in a short period would almost certainly exert price pressure on the market.

More concerning is that such a sell-off is not a one-time event. As Bitcoin prices decline, the asset value of Strategy will immediately shrink, weakening its financial ratios. This will further limit its ability to raise funds and may force it to sell even more Bitcoin.

The result is a vicious cycle: refinancing failure leads to forced selling, forced selling leads to price declines, price declines reduce asset value, and the company is compelled to sell further assets. This dynamic, if sustained over several quarters, could deteriorate the balance sheet to an irreparable state.

Therefore, Strategy's structural risk is concentrated in 2028. Outside of this window, the leverage model appears manageable, but failure to refinance in 2028 could trigger sell-off pressure significant enough to impact the entire Bitcoin market.

Thus, 2028 is not only crucial for Strategy's survival but also for the potential volatility of the entire Bitcoin ecosystem.

6. Strategy Relatively Stable, but New Entrants Face Higher Risks

Market narratives often simplify DAT risks to a straightforward question: can a company survive each decline in Bitcoin? However, this analysis indicates that the key to a company's survival is not short-term price fluctuations or stock volatility, but rather the company's balance sheet and the design of its capital structure.

Therefore, assessing DAT companies requires more than just focusing on their stock price or Bitcoin price declines. Key indicators include the position of their static bankruptcy threshold, the timing of cash repayment pressures, and the tools used to bridge financing gaps. These factors help us understand their structural resilience rather than short-term volatility.

Not all risks can be predicted. ETF fund flows, macroeconomic conditions, and changes in regulatory policies can reshape the market environment at any time. Nevertheless, the most reliable benchmark remains the bankruptcy threshold implied by financial data and the company's fundamental cash flow mechanisms.

Strategy stands out in this regard. The company entered the Bitcoin market in 2020, weathered the downturn in 2022, and accelerated its accumulation through leveraged financing in 2024. Its combination of convertible bonds and preferred stock has built a multi-layered buffer mechanism.

As a result, Strategy has a relatively stable foundation. In contrast, new entrants have not established a mature DAT framework, and their ability to withstand significant price declines is far less stable.

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