Strategy’s 650,000 Bitcoin holdings face “death spiral” risk as stock declines

Polygon CEO Sandeep Nailwal’s warning that Strategy could become “the LUNA of this cycle” has sparked urgent questions about systemic risk in the Bitcoin market. 

Source: X

With the company’s stock trading below the value of its Bitcoin holdings for the first time and a critical liquidity threshold approaching, the world’s largest corporate Bitcoin holder faces a potential crisis that could shake the entire crypto ecosystem.

The Bitcoin and MSTR charts tell a troubling story

An analysis of current price action reveals a stark divergence that validates concerns about Strategy’s precarious financial position. 

Bitcoin dropped 6% to around $84,856 on 1 December, extending its decline from recent highs near $108,000.

While painful, this 22% correction from peak levels remains within normal volatility ranges for the leading cryptocurrency.

Source: TradingView

MicroStrategy’s stock chart, however, paints a far more distressing picture. The equity plummeted nearly 10% in a single session to $159.77, representing a catastrophic 66% decline from its July high of approximately $473. 

Source: TradingView

This massive underperformance relative to Bitcoin signals that markets are pricing in substantial corporate and structural risks beyond simple crypto exposure.

The technical damage appears severe. The stock has formed a double-top pattern near $445 on weekly charts, with a critical support level at $230 already broken to the downside. 

Price action now trades decisively below both the 50-week and 100-week exponential moving averages—a configuration typically associated with sustained bearish control. 

The preferred stock trap

Strategy’s aggressive Bitcoin accumulation strategy relies on a complex capital structure that has become increasingly unstable. The company issued multiple series of perpetual preferred stocks, offering a range of dividends annually. 

These instruments were designed to fund continuous Bitcoin purchases without immediate dilution to common shareholders.

This mechanism worked brilliantly during Bitcoin’s ascent but has entered dangerous territory during the current downturn. 

With the stock price collapsing and investor appetite for new offerings evaporating, the company’s ability to raise fresh capital has been severely compromised.

The mNAV Death Cross: Understanding the liquidation trigger

For the first time in its Bitcoin treasury history, Strategy’s leadership has acknowledged conditions under which the company would sell its Bitcoin holdings. 

CEO Phong Le outlined two specific triggers during a recent podcast appearance: the stock must trade below its modified net asset value, and the company must be unable to access capital markets for equity or debt financing.

The modified net asset value compares the company’s market capitalization to the value of its Bitcoin holdings. 

When this ratio drops below one, the company’s market value becomes less than the value of the Bitcoin it owns—a clear signal that investors are assigning a negative value to the corporate structure itself. 

As of late November, this metric hovered near 0.95x, uncomfortably close to the 0.9x danger zone that management has internally identified as a potential action threshold.

If the mNAV continues to decline toward 0.9x while credit markets remain closed to the company, a Bitcoin sale becomes not only possible but also mathematically probable.

What happens when 3% of Bitcoin supply hits the market?

The potential impact of a Strategy liquidation extends far beyond a single company’s balance sheet. 

With control of over 650,000 Bitcoin, representing more than 3% of the total supply, any forced selling would likely be one of the largest single supply shocks in cryptocurrency history. 

For context, the Mt. Gox bankruptcy involved approximately 850,000 Bitcoin, though those coins were distributed gradually over years rather than dumped immediately.

A large-scale sale would likely trigger cascading effects across multiple market layers. Initial selling pressure would push prices lower, potentially triggering margin calls and liquidations across leveraged trading positions. 

This could create a feedback loop where falling prices force additional selling, further depressing valuations in a classic death spiral dynamic. 

The psychological impact on market sentiment could prove equally damaging, as Strategy has become a symbol of institutional Bitcoin adoption and long-term conviction.

The LUNA parallel: Why Polygon’s CEO drew the comparison

LUNA’s algorithmic stablecoin model collapsed when the mechanism linking UST and LUNA tokens broke down, triggering hyperinflation and a complete loss of value.

While Strategy’s structure differs fundamentally, the parallel lies in the dependence on market confidence and capital access. Both models work brilliantly in rising markets but contain inherent vulnerabilities during downturns. 

The key similarity is the potential for a self-reinforcing negative spiral where declining prices make the underlying mechanism less sustainable, which further drives prices down.

The coming weeks present a crucial test for MicroStrategy’s model and potentially for Bitcoin’s near-term trajectory. 

Bitcoin’s price action matters enormously. A sustained recovery above $95,000 would provide breathing room by improving MicroStrategy’s mNAV ratio and potentially reopening capital market access. 

Conversely, further declines below $80,000 would intensify pressure across all dimensions of the company’s balance sheet.

Final Thoughts

• Strategy’s current mNAV ratio presents a measurable threshold to monitor, with a break below 0.9x potentially triggering the first major corporate Bitcoin liquidation in history.
• The company’s 650,000 BTC position creates unprecedented systemic risk that extends beyond traditional market volatility, making this a critical moment for institutional Bitcoin adoption.