This article was first published on GuruFocus.
For investors who piled into Strategy Inc.’s grand experiment, what seemed like a clean way to capitalize on Bitcoin’s (BTC-USD) momentum turned into a painful lesson. Strategy (NASDAQ: MSTR ) was once seen as the public market expression of Michael Saylor’s cryptocurrency vision, but with the stock down more than 60% from recent highs, its most popular 2x leveraged ETFs MSTX and MSTU down more than 80% this year, and MSTP seeing a similar decline since its launch in June, trading has changed dramatically. The company’s highly regarded mNAV premium, closely watched by executives, has compressed to around 1.15, raising questions about its buffer relative to its Bitcoin holdings. In a recent podcast, CEO Phong Le noted that a fall below 1.0 could force Bitcoin sales to meet dividend and interest obligations, albeit only as a last resort.
In response, Strategy launched a $1.4 billion reserve fund, funded through a recent stock offering, designed to cover at least 21 months of expenses and potentially stabilize sentiment. But the timing intersects with a broader cryptocurrency pullback: Strategy shares fell 34% in November, Bitcoin is down about 30% from its October high, and is trading near $87,000. The stock was still down 3.3% at Monday’s close, after falling as much as 12% intraday. Leveraged ETFs tied to that name have been hit harder by the volatility decay, turning daily swings into compound losses and dragging down MSTX, MSTU and MSTP’s total assets from more than $2.3 billion in early October to about $830 million today. Domestic traders who once embraced leveraged single-stock ETFs are now faced with how quickly these products can amplify downside in a whipsaw market.
This shift in sentiment raises deeper structural concerns. The strategy relied heavily on equity issuance to fund its accumulation of Bitcoin, and as its valuation premium narrowed, the company turned to preferred shares and more costly financing to keep its buying spree going. Meanwhile, JPMorgan analysts warned that the company could be kicked out of benchmark indexes such as the MSCI US Index and the Nasdaq 100, a change that could trigger billions of dollars in passive outflows. For a company that once went public as a possible S&P 500 contender, the prospect of being removed from the index, shrinking ETF demand, and pressure on the mNAV buffer could signal a new phase for investors who view the stock as a high-octane representation of Bitcoin itself.