Bitcoin fell 21% after Strategy’s debt buyback news— Is a Terra Luna-style doom loop next?

Key takeaways:

• Strategy faces tighter short-term liquidity, but its blimpish 11% nett leverage protects it from forced BTC liquidations.
• A Bitcoin rally supra $70,000 remains improbable arsenic agelong arsenic STRC trades nether $100 and spot ETFs amusement nett selling pressure.

Bitcoin (BTC) faced a 21% terms correction successful 10 days, retesting the $61,000 level for the archetypal clip successful 4 months. This question coincided with Strategy (MSTR US) company's determination to bargain backmost immoderate firm debt, temporarily pausing its Bitcoin accumulation. Traders present fearfulness that Strategy could beryllium forced to liquidate immoderate of its Bitcoin holdings.

Strategy (MSTR US) Bitcoin reserve changes & mean price. Source: Strategy

Strategy had been the largest known Bitcoin buyer, accumulating 126,016 BTC for $9.31 cardinal since March. However, the institution utilized $1.38 cardinal of cash raised by caller equity issuances to bargain backmost immoderate of its convertible debt. The decision, announced connected May 15, coincided with the Stretch preferred banal (STRC US) distancing itself from $100.

Strategy Series A Perpetual Stretch preferred banal (STRC US). Source: TradingView

The STRC preferred banal allows Strategy to contented caller shares whenever its terms reaches $100 and offers holders a adaptable dividend, currently acceptable astatine 11.5% annually, paid monthly successful cash. If traders determine it is nary longer worthy $100, caller buyers measurement successful astatine little levels, which is equivalent to demanding a higher dividend. So, astatine archetypal sight, this should beryllium a non-event for Strategy’s hazard perception.

Strategy raised $7.5 cardinal done preferred banal issuances successful the archetypal 5 months of 2026, which was highly supportive of Bitcoin’s price. Now, the institution faces a unsmooth path, fixed its currency presumption has been reduced to $900 million, which is capable to screen dividends for 6 months.

Strategy (MSTR US) fiscal highlights. Source: Strategy

Strategy’s 11% nett leverage is the cardinal fiscal metric to monitor, arsenic it represents the magnitude of indebtedness the institution holds comparative to its assets. By immoderate standard, the sum provided by its Bitcoin holdings–even astatine a $30,000 price–should beryllium considered conservative.

Will Strategy beryllium forced to liquidate immoderate of its Bitcoin holdings?

While short-term liquidity conditions person surely deteriorated, determination is nary contractual level acceptable successful Strategy’s convertible indebtedness that would unit a Bitcoin reserve liquidation. Moreover, determination is nary prohibition connected selling MSTR banal astatine a discount to its market-adjusted nett plus value.

If indebtedness markets are not available, the institution could opt to dilute existent MSTR holders. Whether this determination would beryllium interpreted arsenic a weakness and further unit MSTR and STRC prices is irrelevant to Strategy’s leverage ratio, arsenic the institution would stay financially solid.

Related: Saylor downplays Bitcoin descent arsenic Strategy faces $11B insubstantial loss

Source: X/zeroxkyle

According to X idiosyncratic zeroxkyle, writer of the “Grand Line” newsletter, an eventual Bitcoin merchantability from Strategy would lone bring its terms down faster, worsening liquidity conditions. The investigation refers to a “doom loop” causing buyers to withhold from adding positions owed to a changeless fearfulness of a ample seller entering the market.

It is intolerable to foretell what would easiness investors' tension, arsenic Strategy is successful nary information of an imminent forced sale. The preferred banal dividends tin beryllium paused astatine will, though they simply accumulate for aboriginal on. Still, arsenic agelong arsenic STRC continues to commercialized beneath $100 and spot exchange-traded funds (ETFs) stay a nett seller, likelihood for a Bitcoin rally supra $70,000 are slim.