Summary MicroStrategy (MSTR) now faces increased competition in its debt arbitrage business and diminished correlation with Bitcoin. MSTR's performance has lagged Bitcoin, with its mNAV efficiency declining and capital raises becoming less effective. Bitcoin appears near a local cycle peak, elevating downside risk for MSTR, especially if BTC corrects 40-50%. There is a case for a rebound, citing NAV Introduction Strategy ( MSTR ) is in the business of debt arbitrage, issuing shares and debt to purchase Bitcoin from the proceeds in anticipation of long-term price appreciation. In Q4 2024, this strategy worked great (for shareholders), as MSTR outperformed Bitcoin ( BTC-USD ) and the S&P 500 index ( SPX ) by a wide margin. Since then, however, after a rebound from the April tariff lows, they have underperformed both. Data by YCharts Their business now faces much more competition than before, as many more Bitcoin (and other cryptocurrency) treasury companies have emerged . This could harden access to capital, as there is more demand for debt. In my view, MSTR today looks like a Sell, but there are also arguments for a Hold, because: 1. Current losses were mostly due to de-correlation. If Bitcoin prices decline further, MSTR has that much further downside plus a downside rerating in NAV premium. 2. Bitcoin prices could be closing in on a local, potential multi-year top, according to cycle theory. 3. Their now lower mNAV and a broken cycle theory could lead to a rebound from here. Why Sell? For quite a few years now, Bitcoin has followed a four year-cycle , aligning with its halving event every four years. In the post-halving year, Bitcoin usually delivers explosive price appreciation and the year after that features a large decline of at least -50%. 2026 would be that year. So far, this cycle has yet to be broken , which tells me it makes more sense to bet on it again rather than against it. Further, MSTR's NAV premium is currently at 0.95, which is far from the euphoric peaks in Q4 2024 around 3, however, it could drop much lower than 1, potentially as low as 0.5, as seen in the 2022 bear market. This is because in theory, MSTR is worth 1X NAV, if they deliver a BTC yield per share of 0 but still maintain financial health. StrategyTracker According to the latest 10-Q , Strategy has roughly $8B of principal outstanding across its convertible senior notes, translating into approximately $35–40M of annual cash interest expense through maturities between 2028 and 2032. More importantly, the company has issued preferred stock with fixed dividend obligations totaling roughly $260M per year. Against this, MSTR holds only a modest cash balance, while its core software business does not generate sufficient free cash flow to service these obligations. As a result, the company’s financial health is structurally dependent on either sustained Bitcoin appreciation or continued access to capital markets. Now that Bitcoin prices have dropped, access to capital might become an even bigger bottleneck and could heighten their financial risk. Additionally, dilution risk remains acute as the company has roughly $17B still available from its at-the-market equity program. Convertible notes create asymmetric outcomes for common shareholders, as when the stock performs well, dilution materializes through conversion, while when the stock underperforms, dilution is avoided but leverage and refinancing risk increase. Together, these mechanisms embed shareholder dilution directly into MSTR’s strategy and materially worsen downside outcomes if the Bitcoin cycle turns and the NAV premium compresses. Technically, MSTR is in a structural downtrend, forming lower lows and lower highs. The key support from the April lows around $235-$245 has been broken without much resistance and we are currently below the 10-, 50-, and 200- moving averages on both the daily and weekly charts, which shows very weak momentum. In 2022, peak-to-trough, the stock fell 90%. If it fell 90% again after the November 18, 2024 peak, we would have 66% further downside ahead of us, to a price of $52. While I do not expect the stock to do that poorly, this shows the potential stakes at play. What I could imagine is a bottom around $68-$88, as depicted on the chart below. TradingView There are also external risks playing into this thesis. As often outlined, we are currently in times where equities are expensively priced, based on historical comparison. There is the argument that this is justified as monetary policy leads vast amounts of capital to flee into risk assets. However, in the long-term, high valuations lower returns . In a correction or even bear market, risk assets often perform poorly compared to defensive ones. Strategy is the epitome of a risk-on asset, as it leverages Bitcoin and has no real operating business or profitability. This further increases the risk of holding. Why hold? Many experts now believe the Bitcoin Cycle theory to be broken, arguing that no top signals have been reached , the price not being as high as it is supposed to be on the rainbow chart , and other possible explanations . And these are fair, data-driven arguments that might end up being true. In that case, there would be no Bitcoin bear market, making it likely that the current correction could be close to the bottom already. In that case, holding or buying MSTR would make sense, as the price would gain both from Bitcoin appreciating and likely multiple expansion in their NAV. If MSTR continues to leverage cheap debt and delivers further BTC yield per share then that negates the argument of dilution, as dilution would only be a necessary evil to enable the former. If BTC yield is positive, so would be true shareholder value creation, IF one believes in the long-term uptrend of Bitcoin. If not, then MSTR is a Strong Sell. NAV premium is now definitely out of euphoria stages, at levels Interest rates are expected to drop over the coming years , which could foster both a risk-on environment, and easier financing terms, which could both help Strategy significantly. Conclusion For me, buying MSTR today seems far too risky, and selling seems better than holding, as it is not a long-term compounder-type of play anyway. While a short-term rebound could definitely occur and even be large in size, and the Bitcoin cycle may be broken, leading to us not getting a Crypto Winter, it seems more prudent to wait for an opportunity where sentiment both for Strategy stock and Crypto in general is even lower. A lower Bitcoin price times a lower NAV multiple leads to a significantly lower share price, which is what I view as downside risk today. Buying at such a level presents a much better risk/reward. It's possible that we do not get such circumstances again, but buying Bitcoin today still presents a better risk/reward than MSTR. I am still keeping MSTR on my watchlist for future swing trades. The below chart shows that outperforming Bitcoin with MSTR is generally very difficult. Data by YCharts
