New “last resort” strategy to sell Bitcoin could trigger on 15% drop – $1.4 billion cash reserve set

Strategy Inc., the corporate bitcoin custodian formerly known as MicroStrategy, has signaled that the mechanisms driving its rapid growth are hitting a cyclical wall.

On Dec. 1, the Tysons Corner-based company said it was prioritizing $1.44 billion in cash reserves and providing detailed parameters to investors for potential asset sales. This represents a pragmatic evolution in financial management that recognizes current market constraints.

This is because the company’s shares are trading at a discount to the net asset value (NAV) of its Bitcoin holdings.

This move marks a break in the “premium-driven leverage loop.” During this cycle, Strategy took advantage of high equity premiums to issue stock and purchase Bitcoin, thereby creating added value for investors.

As of this writing, that momentum has significantly stalled.

Strategy’s shares are trading at approximately 1.15mNAV (market net asset value). If this falls below 1.0 mNAV, there will be dilution in the issuance of shares, effectively thwarting the cogs of the company’s primary accumulation engine.

We are already seeing an impact on Strategy’s BTC ledger. The company bought just 130 Bitcoins for $11.7 million between November 17th and November 30th, a fraction of its normal trading volume.

Therefore, this move effectively signals that the company’s management adheres to a disciplined capital allocation strategy. In other words, once the premium disappears, we will have to wait for aggressive expansion.

defensive cache buffer

To bridge this period of mNAV compression, Strategy has established a liquidity buffer designed to protect its balance sheet from the need for dilutive issuances.

The highlight is the $1.44 billion in reserves raised through the market equity program before premiums were depleted.

Although this capital is not legally fenced in, it is effectively allocated to repay the company’s debt obligations.

The reserve currently covers approximately 21 months of interest payments and preferred stock dividends, with management targeting 24 months of coverage.

This distinction is important.

While Strategy’s legacy software business generates sufficient cash flow to cover operating costs and the low interest rate on its convertible debt, it cannot alone support its growing preferred dividend liability, estimated at $750 million to $800 million annually.

With this in mind, Strategy Chairman Michael Saylor said:

“The establishment of a USD reserve to complement our BTC reserves marks the next step in our evolution. We believe this will enable us to successfully navigate short-term market volatility while realizing our vision of becoming the world’s leading issuer of digital credit.”

Strategy reveals when you can sell Bitcoin

On the other hand, this change in market structure is also prompting the sophistication of communication.

In a company update on December 1st, Saylor’s long-held message of “never selling BTC” changed to a more structured approach, and the company identified situations in which a BTC sale could occur.

According to the presentation, Strategy will only consider selling Bitcoin if the stock trades below 1x mNAV and the capital markets are no longer able to access debt or equity issuance.

Although the company emphasized that this is a contingency and not a plan, the disclosure provides institutional investors with a measurable risk threshold.

Of note, MicroStrategy CEO Phong Le recently said:

“We can sell Bitcoin and we will sell Bitcoin if necessary to fund dividends below 1x mNAV… As we look at the Bitcoin winter and see mNAV compressing, our hope is “If mNAV doesn’t go below 1x, and we don’t have any other access to funds, we will sell Bitcoin. But it will be almost a last resort.”

This will now result in Strategy holding back 15% of its Bitcoin sales. If MSTR stock declines by 15% while Bitcoin remains flat, mNAV will fall below the threshold.

Analysts say this transparency addresses a theoretical “reflexivity risk.” This is a scenario in which Strategy’s stock price declines due to the fall in Bitcoin prices, increasing the discount to NAV and putting pressure on its balance sheet.

By defining triggers, the strategy aims to assure the market that selling is a last resort and not a panic reaction.

However, CryptoQuant CEO Ki Young Ju pointed out that Strategy’s plan to sell Bitcoin under these circumstances could cause a “death spiral.”

According to him:

“To be fair, I don’t think selling Bitcoin for less than 1x mNAV is a good idea. While it may benefit MSTR shareholders in the short term, it will ultimately hurt Bitcoin, which in turn will hurt MSTR, creating a death spiral.”

Review of KPIs

Meanwhile, frictions in Strategy’s current model were further highlighted by significant revisions to its forward guidance, and the company officially withdrew its bullish year-end outlook.

In a company update, Strategy scrapped its previous assumption that Bitcoin would reach $150,000 by the end of 2025.

Instead, the company acknowledged that its top asset recently fell from $111,612 to a low near $80,660. As a result, the company readjusted its baseline to a more conservative range of $85,000 to $110,000.

As a result of this restructuring, Strategy expects its fiscal 2025 net income to go from a deficit of $5.5 billion to a profit of $6.3 billion.

Similarly, the company said it expects diluted earnings per share (EPS) to change from -$17.00 to +$19.00.

Perhaps most important for investors is the updated “BTC yield” target of 22% to 26%. The filing states that achieving this and expected Bitcoin profits of between $8.4 billion and $12.8 billion is contingent on “successful completion of the capital raise.”

This warning brings the story back to NAV discounts. With stocks trading below asset value, the “disciplined common stock issuance” required to achieve these yield targets becomes mathematically difficult to execute without diluting shareholder value.