A Strategy faces new pressure in the market after Bitcoin dropped to $60,000, deepening the technology giant's exposure to risk in its substantial reserve of crypto assets and reigniting concerns about its financial health.
The company's shares recorded a sharp decline as Bitcoin extended its depreciation, reflecting the role of Strategy as a leveraged vehicle for exposure to the digital asset. The retreat also caused the company's market value to fall below the amount corresponding to its Bitcoin reserve, signaling tension for the treasury model adopted.
Bitcoin price drops to annual low of US$ 60,000.
Strategy holds approximately 713,500 Bitcoins, acquired at an average price of around US$ 76,000 per unit.
With the digital currency trading around US$ 60,000, the company's reserve is about 21% below the average acquisition price, resulting in unrealized losses in the billions of dollars.
Although these losses have not yet been realized and do not require immediate selling of the assets, they significantly impact the narrative of the valuation of Strategy's shares.
The devaluation also shifts the focus of investors, who now prioritize short-term resilience over long-term accumulation.
Market premium falls below asset value.
A current concern is Strategy's market net asset value (mNAV), which has fallen to about 0.87x. This means that the shares are now trading at a value lower than the Bitcoin balance on the balance sheet.
This discount is relevant because the company's strategy depends on issuing shares at a premium to finance new purchases of the digital asset.
Without the premium, issuing new papers would result in dilution for investors, paralyzing the main growth engine.
Strategy and Michael Saylor still have some short-term protection.
Despite the pressure, there is still no solvency crisis. Strategy raised about US$ 18.6 billion in stock issuances over the past two years, mostly carried out at a premium to the net market asset value.
These capital raisings occurred in a favorable market context and allowed the company to strengthen its position in Bitcoin without excessive dilution.
Additionally, the company has long deadlines to settle debts, and there are no margin call clauses directly tied to the current Bitcoin price levels.
The real risk is yet to come.
Strategy has moved out of the expansion phase and is now taking a defensive stance.
The structural risk would increase if Bitcoin remains significantly below the acquisition value for an extended period, mNAV remains pressured, and capital markets stay closed.
In this scenario, refinancing would be more restricted, the risk of dilution would increase, and investor confidence could be further undermined.
In the current scenario, Strategy remains solvent. However, the margin for error has significantly decreased, making the company vulnerable to the next phase of the Bitcoin market cycle.
The article 'Strategy Faces Catastrophic Risk as Bitcoin Falls to US$ 60,000' was first seen on BeInCrypto Brazil.