MicroStrategy’s Bitcoin Bet Faces Collapse Fears as Stock Plunges

The dramatic 30% drop in MicroStrategy’s stock (MSTR) to $185.88 over the past month, coupled with CEO Michael Saylor’s admission that the firm might sell some of its 650,000 Bitcoin, has drawn stark comparisons to historic corporate failures. Observers point to the collapses of Enron and Lehman Brothers as cautionary tales. ‘Public companies can and do completely implode,’ Eli Cohen, corporate lawyer and general counsel for Centrifuge, told Decrypt. He cited the recent bankruptcies of Silicon Valley Bank, Silvergate, and Signature Bank, where equity holders were ‘zero’d out.’ The parallel is potent: Enron, once the seventh-largest U.S. company, saw its stock dive from $90 to $0.26 after fraudulent practices were exposed.

MicroStrategy’s decline is pronounced. MSTR has fallen 65% from its all-time high set in November 2024, significantly underperforming Bitcoin’s 6% slip over the same period. This underperformance highlights the amplified risk of the company’s leveraged Bitcoin bet. The concept of ‘too big to fail,’ born from the 2008 financial crisis, is now being tested in the digital asset space, where analysts once held similar unshakable views about FTX and Three Arrows Capital before their catastrophic downfalls.

The core threat to MicroStrategy, according to experts, is a potential liquidity crisis. Sal Ternullo, who co-led cryptoasset services for KPMG when it audited MicroStrategy, identified the ‘real danger’ as a ‘liquidity crunch.’ He explained that if the company lacks cash to buy back its stock when it trades at a persistent discount, shareholders will pressure management to sell balance sheet assets—namely, Bitcoin—to fund buybacks. This scenario directly contradicts Saylor’s repeated public advice to investors to ‘never sell’ their Bitcoin.

Strategy has acknowledged this looming threat. Saylor has stated the firm could sell Bitcoin if its market-adjusted net asset value (mNAV) dropped below 1. According to the company’s site, the mNAV is currently 1.14, placing it perilously close to that threshold. In response, the company recently created a $1.44 billion cash reserve intended to pay dividends if needed and prevent forced Bitcoin sales. However, as Katherine Dowling of Bitwise Asset Management noted, while selling Bitcoin could be a ‘good addition’ to its strategy, Saylor’s public stance against selling has complicated that task, making any potential sale a market-moving event.

Despite some social media arguments that MicroStrategy, as the world’s 433rd largest company by market cap, would be bailed out to avoid a disastrous collapse, legal and industry experts firmly disagree. They argue the company lacks the systemic connections that warranted government rescues in 2008. ‘Strategy doesn’t have the same vital connections to the financial system as large banks, despite what some people may believe,’ said Trantor, head of the decentralized exchange Etherex. Eli Cohen was more blunt: ‘No one will bail them out. If MSTR goes bust, the equity holders will lose most or all of their investments. Moreover, any recovery will take years.’

The potential market impact of a MicroStrategy Bitcoin sale is colossal, given it owns approximately 3.1% of the total Bitcoin supply, worth about $60 billion. Trantor warned that any decision to sell ‘would likely lead to very negative responses from the market and may indeed see market participants seek to ‘front run’ the news by increased selling and short activity.’ While not necessarily causing a total price collapse, such an event would feed a bearish confirmation bias in a market ‘on the hunt for the next ‘Terra Luna or FTX’ style collapse.’ The firm’s enormous bet, once seen as a bold innovation in corporate treasury management, now presents a concentrated risk that could reverberate far beyond its own shareholders.