Massive Bitcoin Selloff Ahead? Strategy Stock Drops 55%

MicroStrategy (now Strategy), the corporate intelligence company, is having operational challenges right now. From their November top of $475, its shares have dropped more than 55%.

This has raised doubts about their creative Bitcoin-centric business plan. Given the current volatility of Bitcoin, which has dropped to as low as $86,000 following a 9% loss, market watchers are wondering about the sustainability of Strategy’s approach.

Strategy: Dire Market Conditions

The business model of approach is essentially based on an ambitious plan that has turned the company from a regular software organization into a Bitcoin powerhouse. Right now, the corporation has bought 499,096 BTC for a total of $43.7 billion. A fresh debt issuance earlier this month of $2 billion has raised the average cost per Bitcoin to $66,350.

This aggressive acquisition strategy involves borrowing through 0% convertible notes, purchasing Bitcoin to drive prices higher, selling new shares, and using the proceeds to acquire even more Bitcoin. The cycle has been profitable thus far; however, the current market conditions pose a threat to its sustainability.

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Liquidation Concerns Loom But Remain Unlikely

According to The Kobeissi Letter’s research, Strategy would be vulnerable to liquidation pressure should Bitcoin’s price drop below $66,000 and stays there. This crucial level represents the company’s average acquisition cost. Still, a lot of elements point to liquidation being unlikely even with the present market volatility.

Strategy holds $8.2 billion in debt against $43.4 billion worth of Bitcoin, providing substantial cushion. More importantly, most of the company’s convertible notes don’t mature until 2027, giving Strategy valuable time to weather short-term volatility. Since beginning its Bitcoin strategy in August 2020, the company has endured several significant price corrections without selling its holdings.

BTCUSD trading at $88,949 on the daily chart: TradingView.com

Market Conditions Differ From Previous Downturns

Today’s Bitcoin market has more institutional support than during past “crypto winters.” The current ecosystem has better fundamentals, and big businesses are starting to use Bitcoin reserves.

Rezolve AI just recently announced a plan to invest $1 billion in Bitcoin and has already committed $100 million. Countries have started to use similar methods, which is making more people want to buy cryptocurrencies. These changes in the structure of the market suggest that Bitcoin may be more resilient than it was during past downturns, which could support Strategy’s long-term thesis.

Meanwhile, despite the prediction of BitMEX co-founder Arthur Hayes of further declines, the outlook for the world’s most popular crypto remains solid, having hit all-time highs above $109,000.

Strategy’s history of holding through cycles and structuring debt with distant maturities shields it from immediate liquidation pressure. However, its falling share price limits flexibility, keeping its controversial model under strain.

Featured image from Gemini Imagen, chart from TradingView