Strategy (MSTR) – formerly known as MicroStrategy – has been an unquestionable success.
The company pivoted from being a small software provider to a Bitcoin holding company long before “Bitcoin reserves” started becoming a popular term on Wall Street.
The company’s first foray into cryptocurrencies was a buy of $250 million in Bitcoin at $11,600 per token all the way back in August of 2020.
In the intervening five-plus years, the stock has returned more than 1,000%, even after a 63% drawdown from all-time highs set earlier this year.
The Rise of MicroStrategy
Investors piled into the company as a way to add what was effectively leveraged Bitcoin exposure to their portfolios. And that growing investor interest in cryptocurrency planted the seeds of the stock’s eventual lagging performance as sustained investor interest prompted regulators to approve spot Bitcoin ETFs in early 2024.
With the arrival of ETFs that held Bitcoin directly, investors were left questioning whether they wanted Strategy’s “flavor” of Bitcoin exposure at all.
After all, at its peak in November 2024, MSTR was trading at an “mNAV” (Enterprise Value divided by the total Bitcoin reserves) of 3.14, meaning the shares were trading for more than triple what the Bitcoin holdings were actually worth.
That’s a massive premium (which has since evaporated; mNAV is currently 1.1), but the investing case was arguable, although not particularly compelling.
Strategy had the ability to do what retail investors never could. Namely, sell a stake in its portfolio by issuing shares and then use the proceeds to buy more Bitcoin.
As long as Bitcoin kept rising and investor interest remained strong, shareholders could justify paying a premium (though perhaps not that much of a premium) for access to the fundraising mechanism itself.
But in July of this year, that dynamic shifted.
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The Fall of Strategy
Bitcoin, which was trading for $118,000 per token, would go on to set new highs as Strategy saw the premium it demanded begin to slip away.
Not only could investors more easily add crypto to their portfolios on their own, but Strategy began offering new classes of securities, like the preferred stock STRC, which, by virtue of paying out dividends, meant that Strategy was no longer using every penny it took in to “stack Sats” (Satoshis: one-hundred-millionth of a Bitcoin, the cryptocurrency’s smallest unit of account; named after the creator Satoshi Nakamoto)—instead, it would now be obligated to pay out preferred dividends, which of course adds costs to common shareholders.
Unlike the company’s previous low-cost debt offerings, which mostly just raised the risk of shareholder dilution (Strategy currently has $8.2 billion of debt outstanding, the majority of which is 0.00%-coupon convertible debt; the average coupon for all outstanding debt is 0.421%), these perpetual preferreds pay out hefty 8% to 10.75% yields.
The actual dollar amounts of the payouts (about $700 million a year) were less significant than the strategy shift, at least as far as investors were concerned.
Strategy had skyrocketed on a combination of a bit of clever financial engineering and its commitment to buy and hold Bitcoin, come what may.
When the company began issuing preferreds, it sacrificed the latter in favor of the former.
And the share price plummeted, falling from an all-time closing high of 456 on July 16 to 164 today.
On top of all that, the company is now contending with threats from MSCI to exclude digital asset treasury companies (like Strategy; companies whose digital assets exceed more than 50% of their total assets) from MSCI’s Global Investable Market Indexes starting in February 2026.
Shares would continue to trade on exchanges normally, but they’d be omitted from any ETF that explicitly invests in companies included in the MSCI USA and MSCI World Indexes.
Per reporting from Yahoo!, JPMorgan estimates that could trigger $8.8 billion in outflows.
So, what’s an investor to do?
Should You Buy Strategy (MSTR) Now?
The risk of index omission is real and significant, and it’s an asymmetric risk that is unrelated to the performance of Bitcoin itself.
MSTR has long traded at prices that are untethered to the value of the company’s holdings (to the upside), and there’s no reason they couldn’t trade at a significant discount to their Bitcoin holdings.
If you’re considering starting a position, you may want to wait for a decision from MSCI early next year to reassess (if you still want to invest in MSTR, shares will probably be available at a discount should MSCI decide against them).
If you’re already invested in MSTR, you may want to consider reallocating some or all of that to a simple Bitcoin ETF like the iShares Bitcoin Trust (IBIT) in order to maintain Bitcoin exposure while eliminating some of the company-specific risk that MSTR introduces.
Lastly, I’d be remiss not to mention that what has worked for MSTR (leveraged Bitcoin exposure by virtue of their fundraising mechanism) could work for them again, but I’d expect that to be the case only in a more exuberant crypto bull market.
In other words, MSTR isn’t a permanent stay-away, but it’s something you should consider pivoting into only should the company clear its immediate MSCI-related hurdle and in a more supportive market.
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