Bitcoin’s proxy stock is collapsing – Is Strategy headed for a forced liquidation?

Is forced liquidation looming for Bitcoin’s biggest corporate believer? Strategy’s stock is crumbling, Bitcoin is struggling, and debt is piling up. Could the company’s aggressive strategy backfire?

Forced liquidation fears explode

For months, Strategy (formerly MicroStrategy) had been riding high, propelled by Bitcoin’s (BTC) relentless rally and renewed optimism in crypto markets following pro-crypto Donald Trump’s return to the White House.

The company’s stock soared to an all-time high of $543 in November 2024, mirroring Bitcoin’s surge to fresh records. But the euphoria didn’t last. On Feb. 26, MSTR plunged to $263 — a staggering 52% drop from its peak.

The sell-off has been particularly steep this week, with MSTR shedding 19% as Bitcoin struggles to hold key support levels. As of writing on Feb. 27, BTC is hovering around $86,000, about 21% below its all-time high of $109,000, reached on Jan. 20.

Despite BTC’s downturn, Strategy hasn’t wavered in its Bitcoin-first approach. Just last week, the firm doubled down on its aggressive accumulation strategy, snapping up another 20,356 BTC for nearly $2 billion at an average price of $97,514 per coin.

The latest purchase was funded through its at-the-market equity program and a heavily subscribed $2 billion convertible note offering.

With this latest addition, the company now holds a staggering 499,096 BTC — nearly 2.4% of Bitcoin’s total fixed supply — cementing its position as the largest corporate Bitcoin holder by a wide margin.

Yet, while Strategy remains all-in on Bitcoin, the market isn’t as convinced. Some corners of the internet are warning of an impending “forced liquidation” event, suggesting that if Bitcoin falls further, Strategy could be in serious trouble.

One user floated the idea that liquidations could begin at around $66,000 BTC, while another bluntly predicted the company could be bankrupt within a year.

But how much truth is there to these concerns? Could Strategy really face a liquidation crisis, or is this just another case of crypto Twitter running ahead of itself? Let’s break it down.

The reality behind Strategy’s liquidation fears

Looking at the numbers, the structural setup of Strategy’s Bitcoin holdings, and how capital markets work, the theory of forced liquidation isn’t entirely off the table — but it would require a worst-case “mayday” scenario.

For starters, forced liquidation is a function of leverage, collateral, and lender obligations. If Strategy had taken out traditional loans to buy Bitcoin and BTC’s price fell below a critical threshold, creditors could demand repayment by liquidating its assets. But that’s not how Strategy operates.

As of now, the company holds nearly half a million Bitcoins, worth over $43 billion. However, it also carries $8.2 billion in total debt, translating to a leverage ratio of 19%.

Most of this debt is structured through convertible notes — debt instruments that give investors the option to convert their holdings into equity rather than demanding immediate repayment. This structure provides far more flexibility than a company using direct leverage.

The key buffer for Strategy is time. Most of its debt obligations won’t start maturing before 2028, meaning that as long as the company can sustain itself in the interim, it doesn’t need to worry about immediate liquidation.

However, this also introduces a new layer of risk. If Bitcoin were to fall by over 50% from current levels and remain there for an extended period, refinancing or rolling over this debt could become extremely difficult.

At that point, investors would be reluctant to continue lending unless they had strong conviction in Bitcoin’s long-term appreciation.

Another major concern is the possibility of an early redemption call on Strategy’s notes. Credit agreements outline that a “fundamental change” at the company could trigger such a scenario, potentially forcing Strategy to liquidate some of its Bitcoin holdings to meet obligations.

But what exactly constitutes a fundamental change? According to EpochVC, it would require a formal shareholder vote to approve the liquidation or dissolution of the company.

This is where Michael Saylor’s influence becomes critical. He personally controls 46.8% of the company’s voting power, making it virtually impossible for any forced liquidation to occur without his approval.

Even in a worst-case scenario where external investors push for liquidation, Saylor could simply vote against it, effectively keeping full control over Strategy’s fate in his hands.

While this level of control shields the company from hostile restructuring, it does not eliminate its financial risks. If Bitcoin prices were to decline further and remain at lower levels for an extended period, early redemptions and refinancing challenges could put significant pressure on Strategy’s liquidity.

Can Strategy keep raising capital in a bear market?

Since 2020, Strategy has built its reputation on using every available dollar to buy more BTC, effectively transforming itself into a Bitcoin proxy.

The bigger challenge for the company may not be liquidation but whether it can continue securing fresh capital to sustain its aggressive Bitcoin acquisition model.

In late October 2024, MicroStrategy unveiled its ambitious “21/21” initiative, aiming to raise $42 billion by 2027 through a mix of equity and fixed-income securities to fund its Bitcoin purchases.

The plan is evenly divided, with $21 billion coming from stock offerings and another $21 billion from fixed-income instruments. According to the company’s Q3 2024 earnings report, nearly $21 billion has already been secured—$16.7 billion through equity and $3 billion through debt.

At the same time, Strategy has ramped up its Bitcoin accumulation at an unprecedented pace. Until February 2024, the company had amassed 190,000 BTC since adopting its Bitcoin strategy in 2020.

But in just the past year, its holdings have surged by over 309,000 BTC — a staggering 162% increase — bringing its total Bitcoin stash to nearly 500,000 BTC, reflecting its increasingly aggressive approach.

A critical question now is whether investors will continue backing this strategy. So far, Strategy has been able to raise billions, but the appetite for Bitcoin-backed corporate strategies is highly dependent on market conditions.

If Bitcoin’s price remains volatile or enters a prolonged downturn, convertible note holders may demand higher yields or stricter terms, and equity investors may become less willing to absorb dilution from new share offerings.

Macroeconomic conditions also pose a challenge. Rising interest rates could make debt financing more expensive, and while Strategy has historically raised funds on favorable terms, the landscape could shift.

If credit markets tighten, the company may struggle to find buyers for new convertible notes, forcing it to rely more heavily on equity sales or alternative financing methods. This would weaken its stock further, creating a cycle where raising capital becomes increasingly difficult.

Michael Saylor insists that Bitcoin is simply “on sale” right now, but the market may not share his confidence. The longer Bitcoin struggles, the more questions will arise about whether investors are willing to keep funding Strategy’s relentless accumulation model.

Would a Strategy liquidation break Bitcoin?

If Strategy were ever forced to liquidate a portion or all of its Bitcoin holdings, the immediate and long-term effects on the crypto market would be severe.

The most direct impact would be a sharp decline in Bitcoin’s price. Unlike typical market corrections, where selling happens gradually, a mass liquidation by Strategy would likely come in large, concentrated chunks.

If Bitcoin’s price were already weak at the time, this could trigger a downward spiral. Even a sale of just 10–15% of its holdings could cause a deep drawdown, particularly in tight liquidity conditions.

But if the selling is rapid and disorderly, with large dumps onto open exchanges, the impact could be far worse, triggering cascading liquidations across derivatives markets and sparking panic selling.

There’s precedent for such an event. In May 2022, Terra’s Luna Foundation Guard (LFG) dumped over 80,000 BTC in a failed attempt to defend the collapsing UST stablecoin.

The move triggered a 35% drop in Bitcoin’s price within days and set off a broader contagion, ultimately leading to the collapse of firms like Celsius, Three Arrows Capital, and Voyager Digital.

While Strategy’s situation is different — it isn’t propping up an unstable financial product — the psychological impact on the market could be just as damaging.

Another key concern is how institutions would react. If MSTR were forced to sell, it would send a strong signal that even Bitcoin’s most resilient corporate holders aren’t immune to financial stress.

This narrative could weaken confidence among other institutions and publicly traded firms that have followed Strategy’s model of holding BTC on their balance sheets.

Beyond the initial price shock, Bitcoin’s long-term path would depend on how the market absorbs such an event.

If institutions and whales step in to buy Strategy’s Bitcoin at lower levels, the market could stabilize quickly—similar to how it recovered after the FTX (FTT) collapse in 2022.

But if demand is weak, Bitcoin could enter a prolonged bearish phase, delaying institutional adoption and setting the industry back years.

Bitcoin has survived every major crisis thrown its way, from exchange collapses to regulatory crackdowns, always managing to push forward. The real question is: if one of its biggest believers is ever forced to exit, will Bitcoin stumble — or will it simply prove, once again, that it belongs to no one?