Will companies like MicroStrategy and other cryptocurrency-related firms face a crisis if Bitcoin continues to plummet?
Question: If Bitcoin falls below the purchase cost line, do companies like MicroStrategy that buy Bitcoin need to recognize losses in their quarterly financial reports, potentially leading to a downward spiral of harder financing and falling stock prices?
GEMINI's answer (recommended use):
Yes, they not only need to recognize losses, but according to the latest U.S. accounting standards (FASB ASU 2023-08), such losses will impact financial reports more directly and frequently. Regarding the "negative spiral," this risk does exist, but its transmission mechanism is more complex than a simple "liquidation," primarily reflected in the exhaustion of financing capabilities and a crisis in convertible bond repayments.
Based on the market environment and accounting standards as of 2026 (current time point), here is a detailed analysis:
- Financial Report Level: Not just "recognition," but "direct impact on net profit"
In the past (2024 and earlier), U.S. accounting standards treated Bitcoin as an "intangible asset." This meant that impairment losses were only recognized when the price fell below the cost, and price increases typically could not be included in profits unless sold.
However, starting from the 2025 fiscal year (with ASU 2023-08 coming into effect), companies like MicroStrategy must adopt Fair Value measurement.
Current rules: Companies must revalue Bitcoin at market price at the end of each quarter.
Consequences: Regardless of whether Bitcoin falls below the "purchase cost," as long as the price at the end of the current quarter is lower than at the end of the previous quarter, the difference will be directly included in the current net loss.
If it falls below the cost line: Such losses will appear extremely unattractive on the books, directly leading to a significant negative earnings per share (EPS). Although this is typically viewed as a "non-cash paper loss," it will greatly increase the volatility of financial reports, deterring some traditional institutional investors.
- How does the "negative spiral" occur?
For companies like MicroStrategy, the real risk is often not the "liquidation" at the exchange level (because they mainly hold Bitcoin over-the-counter and most of their debt is unsecured), but rather the "double whammy" of stock and debt financial leverage backlash.
The transmission chain of the negative spiral is as follows:
A. Premium Collapse
MicroStrategy's stock price usually has a high premium relative to its net asset value (NAV) of held Bitcoin. Investors buy its stock to "leverage their Bitcoin purchases."
Trigger point: Once Bitcoin falls below the cost line, market confidence wavers, and investors will question whether the company's "borrowing to buy Bitcoin" model is sustainable.
Consequences: The stock price often plummets far more than the drop in Bitcoin (the premium rate is compressed), leading to a rapid shrinkage in market value.
B. The Financing Wall
This is the most fatal link. MicroStrategy's "flywheel effect" relies on: rising stock prices -> issuing high-premium stocks/convertible bonds for cash -> buying more Bitcoin -> pushing up Bitcoin prices -> continuing to increase stock prices.
Reversal: When stock prices plummet and Bitcoin is in a loss position, the company finds it difficult to issue new shares or bonds under favorable conditions. If new bonds are not issued, there is no money to continue buying Bitcoin to support prices, severing the previous upward logic.
C. Convertible Debt Trap
MicroStrategy has issued a massive amount of debt primarily in the form of convertible notes.
In a bull market: Creditors are happy to convert bonds into stock (because stock prices are high), and the company does not need to repay, as the debt automatically turns into equity.
In a bear market (low stock prices): Creditors will not convert (because it would incur losses), and they will demand repayment of principal and interest in cash upon maturity.
Risk point: If by the debt maturity date in 2027 or 2028, stock prices remain depressed, the company will have to come up with tens of billions of dollars in cash to repay the debt. If the company has no cash on hand and cannot issue new financing, the only option is to be forced to sell Bitcoin to repay the debt.
- Will this lead to a "death spiral"?
Currently, this spiral has two key "buffers," but also one "detonation point":
Buffer 1 (No Forced Liquidation): Most of MicroStrategy's debt is unsecured, with no traditional "margin call." As long as the bond maturity date has not arrived, even if Bitcoin drops to $10,000, creditors typically cannot force the company to sell Bitcoin.
Buffer 2 (Cash Flow): The company's software business can still generate some cash flow to pay interest (which is usually very low).
Detonation Point (Market Confidence): If Bitcoin remains below the cost line for an extended period (e.g., over 2 years), leading to stock prices consistently below the conversion price, the market will expect the company to sell Bitcoin to repay debts. This "expectation" will be traded in advance, leading to massive short selling, with stock and Bitcoin prices stepping on each other, forming a substantial negative spiral.
Summary
After Bitcoin falls below the cost line:
In financial reports: Must recognize huge losses, and the data will look very unattractive.
In operations: The flywheel of "issuing bonds to buy Bitcoin" will jam, making financing extremely difficult.
Negative spiral risk: In the short term, it will not lead to direct bankruptcy (because there is no margin call), but will fall into a cycle of stock price plummeting -> inability to convert -> surging debt pressure -> chronic strangulation from expected sell-offs.
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