MicroStrategy is using its Bitcoin holdings to fund its capital structure. The world's largest corporate holder of Bitcoin is confronting a mathematical dilemma stemming from its own business model—as the stock price premium vanishes and financing avenues narrow, the "never sell Bitcoin" pledge is quietly yielding to pressing liquidity needs.
On July 6, MicroStrategy disclosed it had sold 3,588 bitcoins between June 29 and July 5, raising approximately $216 million to pay dividends on its preferred stock. This represents the largest single sale of Bitcoin in the company's history and its third such sale since initiating its Bitcoin strategy in 2020.
Following this announcement, the share price of MicroStrategy Inc (NASDAQ: MSTR) dropped over 5% intraday, while Bitcoin fell to around $61,800, dipping below the company's approximate average cost basis of $75,700. The company reported a digital asset impairment loss of $8.32 billion for the second quarter, coinciding with a 14% decline in Bitcoin's price.
Market apprehension stems not only from the sale itself but from the underlying shift in rationale. MicroStrategy holds 843,775 bitcoins, representing roughly 4% of the global Bitcoin supply, meaning any substantial selling activity could significantly impact the cryptocurrency's price.
Analysis indicates that MicroStrategy's core valuation metric, mNAV, has fallen below 1, signifying the market now values the company below the value of its Bitcoin holdings. This fundamentally challenges its business logic of using premium-priced stock to acquire more Bitcoin.
The Erosion of a "Never Sell" Pledge and a Dramatic Scale-Up in Sales
MicroStrategy had long maintained that it would "never sell Bitcoin" as a cornerstone of its business model, but this commitment has developed significant cracks.
In late May, the company broke its precedent for the first time, selling 32 bitcoins for about $2.5 million to cover preferred stock dividends, insisting this was merely to fulfill obligations to preferred investors and did not signal a strategic pivot.
However, the latest sale of 3,588 bitcoins represents a hundredfold increase in scale. The company disclosed that 1,363 bitcoins were sold at an average price of about $59,300, with the remaining 2,225 sold at approximately $60,800.
The proceeds from this sale are earmarked specifically to pay second-quarter dividends on four series of preferred securities (STRF, STRE, STRK, STRD) and the June monthly dividend for series STRC. Selling Bitcoin is no longer a one-off symbolic action but is gradually being integrated into the company's regular financing framework.
Notably, on June 29, MicroStrategy officially announced its board had authorized the sale of up to $1.25 billion worth of Bitcoin for stock buybacks and to pay interest and preferred dividends, marking an official departure from its previous philosophy of rigidly holding its Bitcoin treasury.
The capital structure underpinning this business model is under increasing strain.
Analyst Zach Pandl noted that MicroStrategy's annual preferred dividend payments alone amount to roughly $1.5 billion, far exceeding the cash flow generated by its software business. When cash reserves are insufficient, the company's options are limited to raising more capital or selling Bitcoin.
As of July 5, MicroStrategy held 843,775 bitcoins and had cash reserves of $2.55 billion. The company estimates this cash buffer provides about 17 months of runway for interest and preferred dividend payments without needing to tap its crypto assets.
MicroStrategy's operational logic is becoming clearer: buy Bitcoin aggressively when financing is readily available, and sell small amounts to cover dividends when financing tightens, thereby maintaining the closed-loop of its capital operations.
Although the company purchased 1,550 bitcoins shortly after its late-May sale, and executed large-scale buys of $2.54 billion and $2.0 billion in April and May respectively, the sustainability of this system is being questioned as Bitcoin's price faces downward pressure.
mNAV Falling Below 1: A Fundamental Challenge to the Core Business Model
The core of MicroStrategy's business model relies on using its stock price premium as "currency" to continuously acquire Bitcoin. The quantitative anchor for this logic is the company's self-created mNAV metric.
Analysis shows that MicroStrategy defines mNAV as the ratio of its enterprise value to the value of its Bitcoin holdings. During its peak, this metric consistently reflected a high premium, allowing the company to repeatedly issue stock to buy more Bitcoin, operating similarly to traditional acquisition-focused companies using highly valued stock as currency for serial purchases.
However, with MicroStrategy Inc's (NASDAQ: MSTR) share price down approximately 75% over the past year, mNAV recently dipped below 1. This means the market values MicroStrategy below the book value of its Bitcoin treasury, causing this "snowball" logic to begin operating in reverse.
More concerning is that this metric itself appears systematically overvalued. It is noted that MicroStrategy calculates enterprise value using the principal amount of debt and the face value of preferred stock rather than their market values. As the prices of the company's bonds and preferred shares have fallen sharply alongside its stock, this calculation method has become significantly distorted.
Taking June 26 as an example, MicroStrategy reported an mNAV of about 0.99, but when calculated using market values for debt and preferred stock, the actual mNAV was only about 0.89. At that time, the company's debt was trading at a 7% discount, and its various series of preferred stock were collectively discounted by about 28%.
As of last Thursday's close, MicroStrategy's website showed an mNAV of 1.09, but the actual figure calculated with market values was only about 1.04, leaving the premium margin extremely thin.
Selling Pressure and Potential Market Ripple Effects
The sheer size of MicroStrategy's Bitcoin holdings gives any selling activity systemic market significance.
MicroStrategy's Bitcoin holdings constitute about 4% of the global total. Even its small-scale sale of 32 bitcoins for $2.5 million in May exerted noticeable downward pressure on both Bitcoin's price and MSTR's stock.
Analysis suggests that while the sale of 3,588 bitcoins remains a tiny fraction of its total holdings, market concern over the potential for larger-scale selling has intensified significantly.
According to MicroStrategy's own logic, when mNAV remains in a discounted state, the company should sell Bitcoin to repurchase its own securities. Investors are closely watching to see if this signal might evolve into more substantial action.
In an effort to stabilize preferred share prices, MicroStrategy raised the dividend rate on its largest preferred series, STRC, to 12% on June 29, attempting to attract buyers and push the price back toward its face value. This move itself indicates the company's heightened focus on the market price of its preferred stock, far exceeding the attitude presented in its mNAV calculations.
It is noted that if the market once again values MicroStrategy at a persistent discount, the company could face a scenario where its cash is depleted, forcing it to tap its Bitcoin reserves on a large scale. MicroStrategy may have bought itself some time, but precisely how much time remains is currently uncertain.
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