Author: Chloe, ChainCatcher

Since October, MSTR has fallen by about 50%. After reaching a high of $457 last year, it has fallen sharply and far underperformed the market. MarketBeat data shows that the 12-month low is about $155.61 and the high is over $450. It has now entered a relatively undervalued low level and is extremely volatile.

Why has MSTR's stock price remained sluggish for months, significantly underperforming the broader market and even worse than Bitcoin itself? This has led the market to question whether the Bitcoin flywheel effect has failed.

Enjoy double the joy in a bull market, and suffer double the pain in a bear market.

The sharp drop in Bitcoin prices was the most direct trigger. Bitcoin has fallen by about 31% since its peak on October 6th, and Strategy, holding approximately 650,000 Bitcoins (3.1% of the total supply), was naturally not spared. MarketWatch further calculated that the correlation between BTC and MSTR is close to 0.97, meaning that the two are almost in a one-to-one linkage. However, due to the leverage effect, the volatility of MSTR was further amplified; while Bitcoin fell by 31%, MSTR fell by more than 50%.

The market is also questioning whether MSTR's flywheel model, on which it relies, is failing. Strategy's mNAV is currently 1.15. According to CryptoSlate, the market is only willing to pay a 15% premium to its Bitcoin holdings for MSTR. Once mNAV falls below 1.0, further share issuance will become extremely dilutive. Bloomberg also points out that with Strategy's market capitalization only slightly above its Bitcoin holdings, the premium has been severely compressed, and this positive feedback loop is failing.

Furthermore, Strategy purchased only 130 bitcoins between November 17th and November 30th, spending $11.7 million, a negligible amount for a company holding approximately 650,000 bitcoins. This suggests that Strategy recognized that at the current premium level, a large-scale issuance of shares would harm rather than enhance shareholder interests, and therefore proactively applied the brakes.

The Financial Times also noted that after its peak, MSTR's share price has begun to underperform Bitcoin itself, raising questions about whether an equity vehicle can still generate more value than simply holding BTC. Especially with the launch of Bitcoin spot ETFs, allowing investors easier access to Bitcoin, why should they bear the debt burden, management risks, and potential equity dilution associated with MSTR?

Furthermore, Strategy has financed its Bitcoin purchase program this year by issuing a large number of convertible bonds and high-yield preferred shares, creating a heavy fixed-payment burden. A Seeking Alpha analysis indicates this will increase the annual preferred stock dividend burden to hundreds of millions of dollars; CryptoSlate estimates this figure could reach as high as $750 million to $800 million annually, not including convertible bond interest. The problem is that while MSTR's traditional software business still generates over $100 million in revenue each quarter, it cannot independently support this ever-increasing preferred stock dividend burden.

This is the core reason why the company announced the establishment of a $1.44 billion cash reserve.

To address concerns about cashing out through cryptocurrency sales, Strategy has established a US dollar reserve.

On Monday, Strategy announced the establishment of a $1.44 billion dollar reserve specifically for paying preferred stock dividends and interest on existing debt, in an effort to address concerns that Strategy might "sell cryptocurrency to raise cash" to pay preferred stock dividends.

According to Strategy's press release, the $1.44 billion came from proceeds from the sale of Class A common stock under its market offering plan. The company currently plans to maintain reserves sufficient to cover at least 12 months of dividend payments and intends to gradually increase these reserves, with the ultimate goal of building a buffer pool capable of covering dividend payments for 24 months or more.

This time, Strategy invested most of the funds raised from the stock sale into its US dollar cash reserves, instead of buying Bitcoin like it had in the past. It can be said that even Saylor had to find a more defensive financial strategy in the face of volatile cryptocurrency prices.

However, even with the release of the reserve fund news, the market reaction remained lukewarm, with MSTR falling more than 11% intraday, marking its fourth consecutive month of decline.

With the company's mNAV remaining close to 1 for an extended period, it signifies that the initial "sell stocks, buy crypto" flywheel strategy has officially become ineffective. CEO Phong Le has previously admitted that if funding runs out, the company may ultimately consider selling its Bitcoin holdings.

Reserves temporarily alleviated market concerns, but risks related to capital structure remain.

According to independent researcher Spreek, mNAV has declined across the board, and Bitcoin strategies have encountered bottlenecks. Saylor had already begun to turn to debt instruments as a new financing channel earlier this year. These instruments have less direct correlation with stock prices and are intended to avoid further depressing MSTR prices and mNAV.

Spreek stated that STRC targets retail investors directly, emphasizing stability and high returns, but neglecting underlying risks. "STRC is more like Luna and UST than MSTR's previous products." However, MSTR's balance sheet is still much stronger than Luna's back then, but the reflexivity mechanism still exists: every time Strategy raises the product interest rate, the annual cash dividend payout increases significantly, and it may only be a matter of time before they consider selling Bitcoin to raise funds.

According to research predictions, Strategy has roughly three predictable trajectories. First, it will choose to reduce leverage, adopt a conservative stance, cease issuing large amounts of STR series preferred stock or debt, reduce the scale and speed of Bitcoin purchases, maintain reserves as much as possible, and refrain from selling BTC, even if this means the stock price will remain below mNAV for a long time, and this is essentially a default end to the Bitcoin flywheel, with MSTR trading at a discount for an extended period.

Another path relies on external macroeconomic drivers, such as liquidity injections from the Federal Reserve or political factors reigniting the Bitcoin craze, allowing Saylor to temporarily escape the mire and restart its old strategy: using the stock price recovery to issue more shares and convertible bonds, and then adding to its Bitcoin holdings at higher prices. However, this will likely only postpone the end result, because the structural flaws in the company's cash inflows mean that always buying at the peak will keep Saylor at the edge of profitability, even if its direction is correct. From Bitcoin's perspective, this is the most favorable development in the near term, as it can alleviate selling pressure and support prices.

The third path involves rapidly expanding preferred shares such as STRCs to maintain operations, attracting retail investors by raising yields and pushing debt to billions or even tens of billions of dollars. In the short term, this seems superior to directly selling stocks or Bitcoin, avoiding immediate market shocks and allowing the flywheel to temporarily recover. However, the previously mentioned reflexivity mechanism is likely to be amplified: as payment obligations swell—currently nearly $750 million in annual dividends, potentially doubling in the future—the company will face a heavy burden of dollar debt, and selling Bitcoin to raise funds for repayment may ultimately become a last resort.

According to a recent Bloomberg report, Strategy CEO Phong Le stated that Strategy is considering lending out some of its tokens. This implies that Strategy hopes to gain a new revenue stream through lending, with annual interest rates typically between 3-5%, but this is still a long way from being implemented.

Strategy's decision to release $1.4 billion in reserves may be a concession to its strategy of not selling Bitcoin. However, in the face of reality, Strategy has also simultaneously lowered its full-year financial forecast and key performance indicators, setting the year-end price of Bitcoin between $85,000 and $110,000. The full-year book value target for Bitcoin in US dollars has also been significantly reduced from the original $20 billion to $8.4 billion to $12.8 billion. Furthermore, Strategy predicts that the full-year net profit will fall within a huge range of a loss of $5.5 billion to a profit of $6.3 billion, a significant reduction from the original forecast of $24 billion for the full-year net profit.