Strategy: The Capital Stack Meets a Falling Bitcoin Price

Below is a summarized version of The Block Research's Strategy: The Capital Stack Meets a Falling Bitcoin Price report. The full PDF version of this report is accessible.

Strategy Inc., formerly MicroStrategy, faces the first real test of its Bitcoin-treasury model. It holds 847,363 BTC acquired for $64.10 billion, or an average of $75,651. At a treasury value of about $54.7 billion, it is about $9.4 billion underwater, about 14.6% below cost.

This is also the first time the full preferred-funded capital stack has been in place during a deep drawdown. There is no mechanical liquidation price. Strategy's core debt is senior unsecured and the Bitcoin is reported as unencumbered. The question to watch is whether future secured financing or senior preferred issuance changes the waterfall. The real exposure is liquidity, carry, and capital-markets access: roughly $1.7 billion of annual preferred dividends, noteholder put dates beginning in 2027, and a $1.4 billion USD Reserve that covers only months of those dividends on its own and is management-designated; it is not escrowed.

MSTR common is not "Bitcoin at a discount." It looks cheap on the headline ratio (market cap over gross Bitcoin), but once debt and preferred claims are subtracted it trades at a premium to what the common actually owns, its residual common NAV. Because that claim is levered, it falls faster than Bitcoin. Whether the premium then widens or compresses as Bitcoin moves is a behavioral question the NAV section takes up, and the caution here does not depend on resolving it.

Strategy is a meaningful but pro-cyclical force in Bitcoin, and that bid is now structurally weaker. Its accumulation is accretive only while the headline ratio sits above its ~1.22x breakeven, and the ratio now screens at ~0.76x, so the bid fades just as the market falls. That reading is partly cyclical and would reverse on a rally. Even so, the threshold keeps ratcheting up as debt and preferred are layered on, while the gross-NAV premium's demand drivers (ETF competition, copycat issuers, the frozen index weighting) erode independently of price. A recovery therefore restores a lower gross-NAV premium against a higher bar. A growing share of new capital now funds dividends, not Bitcoin. The software business has revenue and gross profit, but it did not generate positive operating cash flow in 2025, so issuance fills the shortfall. Capital that once bought coins is increasingly diverted to service the carry. That works in both directions at once: fewer dollars reach Bitcoin (less buy pressure on spot), while the common sold to plug the gap dilutes existing holders (sell pressure on MSTR). Leaning on preferred to bridge the gap only raises next year's dividend bill.

The bear case is a slow grind: dilution, a rising senior claim, reserve drawdown, and occasional Bitcoin sales while the company waits for the next up-cycle. The damage accumulates; it does not arrive in a single liquidation event. The bull case is that the structure has bought enough time for Bitcoin to recover and for capital markets to stay open. Yet that recovery is partly endogenous. A known, fragile holder of ~4% of all Bitcoin weighs, at the margin, on the very price it is waiting to recover, even though the ETFs, not Strategy, are the market's primary bid.

Both outcomes are credible, and the cautious read does not turn on which way the premium breaks. It rests instead on four things already visible: the common still trades above residual NAV, the claim is levered, the gross-NAV premium that funds accumulation has compressed, and the structure depends on continued issuance.

The path of Bitcoin, and the market's willingness to keep funding the stack, decides which side wins.