Four Potential Fault Lines in Strategy’s Bitcoin Fortress

Strategy announced Wednesday that its perpetual preferred equity has grown larger than its convertible debt, with $8.36 billion in permanent capital now exceeding $8.21 billion in dated debt.

While this is a key milestone in defending the company’s colossal Bitcoin treasury, experts suggest the design could contain the seeds of its potential failure.

The strategic shift essentially trades one risk for another.

By replacing debt deadlines with perpetual dividend payments, Strategy has erected a $14 billion financial shield—but one with severe fault lines that, if triggered, could force the very fire sale of Bitcoin it was built to prevent.

Perpetual preferred equity vs. convertible debt

Perpetual preferred equity, as the name suggests, is a form of permanent capital with no maturity date. In layman’s terms, the company sells a special kind of ownership shares that never expire.

In return, buyers receive fixed dividends, but the principal never needs to be repaid. It’s like selling a slice of the company that pays steady income forever, removing the deadline risk but adding a constant cash cost.

The company can keep the money forever as long as it pays the dividends, which in this case, Strategy funds mostly by selling more shares, through Bitcoin appreciation, or from cash flow when needed. The company currently carries roughly $2.25 billion in cash reserves against an estimated $876 million in annual dividend obligations for these perpetual shares, per the official website.

The gap between obligations and $463.5 million revenue “must be funded externally,” Derek Lim, head of research at crypto market-making firm Caladan, told Decrypt.

With $2.25 billion in cash reserve and the current burn rate, Strategy has roughly 30 months of runway. “MSTR eventually runs out of cash,” Lim warned, adding that “if equity markets close entirely for an extended period.”

Financing done in this way has now grown to about $8.36 billion—slightly more than the old debt, per the recent announcement.

When Strategy started accumulating Bitcoin in August 2020, it did so using its existing corporate cash reserves. Soon after, they switched to issuing debt via convertible notes and equity.

It’s like borrowing money from the bank with a fixed deadline to buy a house. If house prices crash temporarily, you still need to repay the bank on time. In such cases, you may be forced to sell the house at a loss to pay the bank.

The company’s decision to shift aligns with CEO and founder Michael Saylor’s “holder forever” Bitcoin thesis by eliminating the threat of forced selling to repay the debt. The $8.21 billion raised so far using convertible debt with maturity between 2027 and 2032 has so far involved refinancing with new equity or conversion to stock—all without selling any Bitcoin.

Strategy’s earliest concrete test is a $1.01 billion “put” option on its 2028 notes that investors can exercise in September 2027, which could force a cash repayment if its stock price is too low.

With the maturity of convertible tranches between 2027 and 2032, it’s a ticking clock regardless.

On prediction market Myriad, owned by Decrypt’s parent company Dastan, users place a 25% chance on Strategy selling some of its BTC holdings by the end of the year.

Potential breaking points of Strategy’s maturity playbook

Saylor’s maturity playbook assumes favorable conditions, but its failure modes are clear:

A prolonged bear market is the first threat. Hypothetically, if Bitcoin crashes more than 50% and stays low for more than two years, as it did in previous bear markets, it erodes MSTR’s stock premium. Raising new capital becomes prohibitively dilutive, strangling the funding model.

If MSTR’s stock price stays low, debt holders won’t convert, and refinancing, as a result, with new equity becomes impossible. If investor appetite vanishes, it would pressure the company to repay the obligations in cash or via Bitcoin sales, which is the second fault line.

“Unlike convertible debt, which can sit quietly, preferred dividends require ongoing cash payments,” Lim added. “If MSTR defers dividends, it signals distress. That signal will tank the stock. A lower stock price makes future equity issuance harder. Harder issuance makes future dividends less fundable. It’s a reputational feedback loop.”

The third potential point of failure is MSTR’s high correlation to Bitcoin. Its status as a proxy for Bitcoin amplifies the top crypto’s moves. This feature helped the company initially in refinancing or raising more cash between 2020 and 2024, as the stock price skyrocketed during Bitcoin’s bull run.

That dynamic has changed recently, with MSTR now amplifying the downside. Bitcoin’s 32% decline from $124,700 to $85,000 between early October and late November 2025 triggered a 52% crash in MSTR in the same period.

Bitcoin is trading at under $90,000, down almost 30% from its all-time high, according to CoinGecko data. A steep correction from here could trigger an investor exodus from MSTR, destroying its primary tool—equity sales—for funding dividends and refinancing, dismantling the fortress from within.

“The risks are deeply interconnected, and the feedback loops matter more than any single variable,” Lim said. “Bitcoin price decline causes mNAV to compress. That compression makes equity issuance value-destructive, eroding confidence and making dividend funding uncertain, which then depletes cash. It’s a chain reaction.”

mNAV, or Market-to-Net Asset Value, is a metric that compares a company’s market cap to the real-time market value of its crypto reserves to determine if the company’s stock trades at a premium or discount to its crypto holdings. If mNAV is at a premium, it helps raise cash by issuing equity.

On Myriad, a majority of users expect Strategy’s mNAV to slip to 0.85x, placing an 86% chance on this outcome rather than it rising to 1.5x.

These fault lines form a feedback loop. One stressor accelerates the others, pressuring Strategy into a potential death spiral.

“The most likely ‘bad’ outcome isn’t a spectacular blowup,” Lim concluded. “It’s a slow grind where MSTR underperforms BTC for years due to dilution drag, eventually becoming a cautionary tale about corporate treasury strategies. That’s arguably already happening.”

Strategy’s experiment is a high-wire act balancing perpetual leverage against Bitcoin’s volatility. Its success solidifies a corporate Bitcoin blueprint; its failure—a forced liquidation of even a fraction of its 710,000 BTC—would be a seismic event for crypto markets, testing the resilience of the very asset it was built to hold.

Decrypt has reached out to Strategy for comment, and will update this article should the firm respond.