Bitcoin (BTC) printed a record high of $125,000 in October 2025 but dropped about 45% to $69,000 by February 14 after bouncing from recent lows of $64k. This sharp decline, called a “crypto winter,” isn’t due to a single event but a confluence of risk aversion, institutional retreat, tighter financial conditions, and amplified volatility from leverage, overriding earlier Trump-era enthusiasm.
Furthermore, if current trends continue, companies like Strategy, which have invested heavily in Bitcoin at higher price points, could experience declining returns on those investments in the out years.
First, let us attempt to explain the BTC price volatility backdrop.
Global risk-off sentiment and macroeconomic uncertainty, driven by US actions in Venezuela and other geopolitical threats to various regions, have led investors to retreat from speculative assets. Spot Bitcoin ETFs from firms like BlackRock and Fidelity have experienced significant withdrawals since late 2025, continuing into 2026. Institutional and individual investors are de-risking. As a result, Bitcoin has mirrored high-beta tech stocks rather than acting as a decoupled hedge.
Hawkish signals from the Federal Reserve, including President Trump’s nomination of Kevin Warsh as Fed Chair, seen as likely to support higher interest rates, dampened enthusiasm for speculative assets like crypto. Along with earlier decisions to keep rates steady, these moves weakened the “easy money” narrative that had driven previous gains. The parallel inflationary trade in precious metals is also “off.”
As is frequently the case in “easy money or risk on” trades, once there is a change in investor sentiment, over leveraged positions intensify the downturn, as falling prices triggered margin calls and automatic liquidations, leading to further selling pressure.
Stalled legislative momentum. Despite Trump’s pro-crypto stance and earlier optimism, which drove the BTC rally, progress on industry-friendly legislation has stalled in Congress, and adoption/utility as a US payment method remains limited.
Additionally, Bitcoin’s short-term outlook remains uncertain. According to Polymarket, the world’s largest prediction market, there is speculation that BTC could decline to $60,000 before recovering. Unlike options and futures markets, which are structurally linked to underlying securities through mathematical relationships, Polymarket operates as a conceptual platform, a marketplace based on collective predictions rather than direct security ownership. As a result, platforms like Polymarket can affect BTC’s price dynamics without any associated asset holdings.
The process of valuing BTC has become more intricate for investors. With more digital assets and exchanges now available, Bitcoin is no longer the only investment choice in the crypto space. Since 2016, the market has diversified, offering several alternatives that mirror Bitcoin’s core functions, such as peer-to-peer transactions, cross-border payments, and currency conversion. This raises questions about the benefit of holding an asset like BTC, especially when it may have lost its uniqueness and depends on mechanisms like scheduled halvings or “forks” to support its valuation. For Bitcoin’s price to increase as a store of value, both institutional and retail investors must continue to trust and maintain their holdings, a consensus that sustains potential upward movement as long as belief in BTC’s value endures.
Second, enter Strategy Inc. (NASDAQ: MSTR).
Originally the company was a business intelligence (BI) and analytics software provider. It has evolved and now develops cloud-native, AI-powered enterprise analytics platforms (like Strategy ONE) that help organizations visualize data, create reports, build mobile apps, and make data-driven decisions. It competes with tools from companies like SAP, IBM Cognos, and Oracle in the BI space, serving thousands of global customers with subscription-based and licensing models. However, since 2020, Strategy has transformed dramatically by adopting an aggressive Bitcoin treasury strategy. Under Michael Saylor’s leadership, the company began using its balance sheet (and raising capital through equity offerings, convertible notes, and other instruments) to accumulate Bitcoin as a primary reserve asset, positioning itself as the world’s first and largest “Bitcoin Treasury Company” and the biggest corporate holder of BTC.
From what we can tell, as of this writing, Strategy holds approximately 713,502 Bitcoin (about 3.4% of Bitcoin’s total supply of 21 million), acquired at an average cost of around $76,052 per BTC (total cost basis ~$54.26 billion).
According to published reports, these BTC holdings dominate investor sentiment and the company’s enterprise value, far outweighing its traditional software business revenue, which remains in the hundreds of millions annually but is secondary in shareholder focus.
By design, MSTR stock now acts as a leveraged proxy for Bitcoin exposure: It provides amplified upside (and downside) to BTC price movements due to the company’s debt-financed accumulation and structure (including instruments like preferred stock or “STRC” for credit amplification). MSTR shares peaked at $435 in July of last year and now trade around $133, down 69% over last six months.
As expected, the stock has been highly correlated with Bitcoin’s price, experiencing sharp declines amid BTC’s pullback, leading to potential unrealized losses of $12.4 billion on a mark-to-market basis.
Despite these circumstances, the company maintains an assertive acquisition strategy—such as adding tens of thousands of BTC in January 2026—without divesting assets, utilizing cash reserves and emphasizing a long-term “Bitcoin yield.” The BTC Yield KPI measures the percentage change in BitcoinPerShare (BPS) from the start to the conclusion of a period. A straightforward metric assesses the dollar value of BTC per MSTR share. For example: with 713.5k BTC trading at $69,000, the total value is $4.9 billion; divided by 330 million shares outstanding = $149.19 per share, in addition to the core business, which contributes to market value. Currently, MSTR is trading at $133, reflecting a valuation below its BTC holdings and not accounting for the core business, which remains steady around $450 million in annual revenue.
Third, if the price of BTC perpetually flatlines or trends lower, what is the worst case scenario for Strategy?
The company’s market capitalization is now lower than the value of its Bitcoin holdings. However, during their recent 2025 year-end earnings call, the company stated it could pay off all its convertible debt even if Bitcoin’s value dropped by 90%, and that it has enough cash to cover dividends for the next two and a half years.
As we explained in our first note on MSTR last March:” If we understand correctly, Strategy has issued six separate convertible bond offerings over the last twelve months for $8.2 billion. Those proceeds were used to purchase BTC. The “rub” is two of those convertible bond tranches, raised $5 billion, were issued when BTC was trading at a higher price of $92.3k and $96.2k, respectively. Investors may be concerned over dilution to the common stock if the convert is redeemed at a lower BTC price compared to the BTC purchase price and more shares are awarded to the bond holder to make up the valuation difference. These two tranches both have 2028 put dates.”
To be clear there are no loan-to-value (LTV) covenants tied to BTC price; the only BTC-collateralized debt was redeemed in 2024. All converts are currently out-of-the-money (MSTR stock at ~$133 vs. conversion prices of $150+), meaning holders are unlikely to convert, forcing Strategy to service interest and repay principal in cash (which is our point, depending on transaction, redemption or maturity, in order to ease the cash drain the company may offer some portion if not all in stock).
Since our last MSTR note, with BTC now near $69k, more tranches are under water and the 2028 tranche is no longer unique, raising the risk of a rolling financial squeeze as maturities approach and investors may receive stock instead of cash leading to BTC yield and earnings dilution.
No immediate liquidity crunch or forced BTC liquidation is expected, as there are no margin calls or BTC-specific covenants. Bonds in question are unsecured, mostly low- or zero-coupon debt used to fund Bitcoin purchases. However, sustained low BTC prices could lead to credit rating downgrades (current S&P ‘B-‘), higher future borrowing costs, or difficulty accessing capital markets. If combined with the below these circumstances could cause more downward investor pressure on shares of MSTR.
There are concerns about the commoditization of Strategy’s AI and business intelligence operations. This one-two punch scenario has raised market unease about Strategy’s earnings power, ability to meet its long-term debt obligations and has led to speculation regarding potential forced liquidation of Bitcoin holdings (Vs the company’s stated long term goal to hold and never sell BTC. It is not hard to imagine MSTR supporters suggesting other companies doing the same, forcing a higher value on a commodity because of less and less float).
FWIW, this author has struggled to find a defensible valuation methodology for BTC, preferring to opine on potential functionality, use cases and regulatory status. As a reminder, the Commodity Futures Trading Commission (CFTC) has jurisdiction of BTC as a commodity and the Internal Revenue Service (IRS) treats BTC as property. The Securities and Exchange Commission (SEC) does not categorize BTC as a security per se but does so on related ETFs.
MSTR is one of the market’s most discussed and volatile equities, with performance closely aligned with cryptocurrency sentiment. For further details, stakeholders are encouraged to consult the company’s SEC filings, official website, and conference call transcripts.
