Strategy buys another $400 million in Bitcoin, how much longer can this "toxic flywheel" keep turning?

Question

On May 25 local time, Michael Saylor once again announced the "Bitcoin War Report": Strategy Company purchased an additional 4,020 BTC in the second quarter of 2025, with a total amount of approximately $427.1 million, and a unit cost of $106,237. Including previous holdings, Strategy now holds a total of 580,250 BTC, with a cumulative investment amount reaching $40.61 billion and an average cost of $69,979.

Once the news broke, the crypto community was in an uproar. Some called it the "strongest buyer of Bitcoin," while others shouted, "faith recharge continues," but the calm observers would notice that this seemingly brave investment is bringing the entire Bitcoin financial structure closer to the critical point of leverage collapse.

It's not about buying coins behind the scenes, but about burning money to "refine leverage".

In the impression of the vast majority of people, Strategy is a Bitcoin "vault", essentially a "quasi-ETF type" company - buying BTC and waiting for the price to rise. But in reality, it is a complex and dangerous financial leverage machine.

It does not buy coins with profits, but instead raises funds by continuously issuing new shares (ATMs), convertible bonds, preferred stocks, etc., to purchase BTC.

The core of this model is not investment, but rather the creation of a perpetual motion-like flywheel:

Stock price rises → Can issue stocks at a higher premium → Raise more money to buy BTC → BTC rises → Stock price continues to rise → The flywheel spins faster

But the key power of this flywheel is an indicator called mNAV (market Net Asset Value): that is, the current stock price of the Strategy / the market value of BTC represented by each share.

As long as mNAV > 1, the company can "issue shares at a premium" to exchange cash for a higher valuation. But once mNAV < 1, the flywheel will lose its fuel, and the risk of the entire structure will surge like a flash flood.

Structural Analysis of "Toxic Leverage"

Behind this round of $400 million increase in holdings, the specific fundraising methods used by Strategy have not been made public, but historically, its "funding arsenal" includes the following several types:

ATM issuance (continuously selling shares at market price)

This is currently the most frequently used method. Once the market is optimistic and stock prices rise, the company can issue shares at a high price to quickly raise funds to buy BTC.

The problem is that every time shares are issued, it dilutes the original shareholders. Without the continuous rise of BTC as support, this dilution will become increasingly unsustainable.

Convertible Bonds: Betting on Future Valuation

Strategy has issued approximately $8.2 billion in convertible bonds. These bonds must be converted into shares based on the condition that "the stock price reaches a certain conversion price" in the future. If the stock price does not meet the conversion conditions, the company will either repurchase the bonds or be forced to sell BTC to repay the principal and interest.

The trigger conditions are still based on mNAV - an "illusory indicator" driven by market sentiment.

Preferred stock: perpetual high-yield debt

STRF (Strategy Risk-Free) is a type of preferred stock issued by the company with an annualized return of 10%. Although it is packaged as a "fixed income BTC exposure product", it is essentially a permanent cash flow liability.

The only way to maintain this payment capability is to continuously dilute ordinary shareholders, using "the money of future investors" to pay "the returns of today's investors."

This is exactly the characteristic of a classic Ponzi structure.

Everything relies on the "faith" indicator: mNAV

Let's make a simple deduction:

Assuming BTC is in a sideways trend, the Strategy holdings do not rise or fall.

Shareholders still need to receive interest (preferred shares), and bonds must be repaid (convertible bonds);

The company can only "raise funds" by selling shares or selling BTC.

At this point, if market sentiment cools and mNAV falls below 1, the company will be unable to raise funds through new stock issuance. This means that:

Unable to buy coins → Asset growth stagnates → Investors become disappointed → Stock prices fall → mNAV further declines → The flywheel completely stops.

At that time, the company will have to make the worst choice: sell BTC to pay off debts. This will create selling pressure in the market, further impacting mNAV.

The name of this closed loop is called "death spiral."

Strategy is not an ETF, but a risk packaging machine.

Unlike closed-end funds like GBTC, the stock price of Strategy is not tied to the actual price of BTC.

Its value does not directly reflect the net asset value but is driven by a multitude of market factors — premium expectations, leverage structure, Saylor's own influence, and other factors.

When investors start to realize that the stocks they hold are not BTC itself, but rather a game built on "selling stocks to buy coins and then selling stocks again," the bubble will quickly burst.

We can learn lessons from the history of GBTC:

During the bull market in 2021, GBTC once traded at a premium of up to 30%. However, with the launch of the BTC ETF and the increase in alternative channels, the demand for GBTC disappeared, quickly plunging into a discount quagmire and ultimately being forced to transform.

The same fate may also await the Strategy: as more Bitcoin spot ETFs are introduced, investors will gradually realize that they do not need to gain exposure to BTC through "a high-leverage company."

Five, where is the endpoint of the "BTC plan" of Strategy?

Michael Saylor has publicly stated that his goal is to increase the Bitcoin reserve size to millions of coins through the issuance of trillions of dollars in preferred stock, debt, and other forms.

It sounds like the building of a financial empire. However, according to the current 10% annual preferred stock model:

If $30 trillion in debt is issued, $300 billion in interest is needed each year;

Even if the price of BTC rises in the future, the company must continually dilute its equity or cash out BTC to maintain cash flow;

The overall risk exposure far exceeds that of any physical enterprise in traditional financial markets.

In other words: this is not about reserving Bitcoin, but about betting on the ongoing bull market of Bitcoin with the future interests of shareholders.

In conclusion: The faith in Bitcoin should not be built on a sand pile of leverage.

The crazy buying behavior of Strategy has excited many investors, but if we strip away the emotions, we find that this is actually a large-scale financial experiment: how to create a company-level BTC hedge fund using equity leverage.

But as the 2008 financial crisis taught us—any structure built on high leverage and market sentiment can collapse with just a slight disturbance.

The original intention of Bitcoin was to oppose excessive financialization and credit expansion. Today, a company is using BTC as collateral to start the game that Wall Street knows best.

It will eventually return to the fundamentals - not the flywheel, not faith, and not Michael Saylor's tweets.

This article only represents the author's personal views and does not represent the stance and views of this platform. This article is for information sharing only and does not constitute any investment advice to anyone.

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