Crypto concept stocks plunge across the board, Strategy sets up a $1.44 billion reserve fund

Strategy will transition from an extreme leveraged coin-hoarding approach to a "BTC + USD dual reserve" model.

Written by: ChandlerZ, Foresight News

On the evening of December 1, all three major U.S. stock indexes closed lower. The Dow Jones fell 0.89%, the Nasdaq dropped 0.38%, and the S&P 500 Index declined 0.53%. Most popular tech stocks fell, with Broadcom down over 4%, and both Google and Microsoft down more than 1%. Meanwhile, the cryptocurrency market experienced a sharp sell-off, with bitcoin briefly falling below $84,000.

At the same time, U.S.-listed crypto stocks also generally declined. Coinbase (COIN) fell 4.76%, now trading at $259.84; Strategy (MSTR) dropped 3.25%, now at $171.42; Circle (CRCL) fell 4.99%, now at $75.94; Bitmine (BMNR) dropped 12.62%, now at $28.94; and SharpLink Gaming (SBET) fell 9.60%, now at $9.60.

Analysts have pointed out that from a capital perspective, although the market generally expects the Federal Reserve to start cutting interest rates next week, related ETFs have only seen slight net inflows, and the overall market remains weak, making it difficult to support the judgment of a "significant return of institutional funds." At the same time, signals of tightening monetary policy from Japan are also exacerbating market unease: the yield on 2-year Japanese government bonds has surpassed 1% for the first time since 2008, prompting investors to reassess whether major global central banks can continue to maintain a coordinated pace of easing.

In this environment, even if the Federal Reserve sends dovish signals, it is difficult to offset tightening expectations from other economies. The overall policy direction remains tight, providing institutional investors with a reason to continue reducing their bitcoin exposure.

It is worth noting that Strategy issued its latest announcement stating that the company purchased 130 bitcoins between November 17 and November 30, for a total amount of $11.7 million. As of November 30, Strategy held a total of about 650,000 BTC, with a cumulative cost of approximately $4.838 billions, translating to an average price of $74,436.

This is Strategy's first bitcoin purchase after a week of not increasing its holdings, with the source of funds still coming from the sale of common stock. However, the market believes that the scale of its recent purchases is quite limited, especially given the sharp drop in bitcoin prices. Some investors interpret this as a sign that Strategy's high-intensity coin-hoarding model may be stalling, and question whether it can pay dividends on various preferred shares.

Strategy's New Reserve Fund: Using Equity Financing to Buy a Safety Period

Strategy has announced the establishment of a USD reserve fund of up to $1.44 billions, dedicated to paying dividends on preferred shares and interest on existing debt. The source of this reserve fund is the proceeds from the company's sale of Class A common stock under its market issuance plan.

Strategy plans to maintain a reserve size that covers at least 12 months of dividend payments, and intends to gradually strengthen the reserve, with the ultimate goal of building a buffer fund that can cover 24 months or more of dividend payments. The existence, terms, and size of the reserve are entirely at the company's discretion, and Strategy will dynamically adjust the reserve size based on market conditions, liquidity needs, and other factors.

Nevertheless, this statement has not effectively calmed market concerns. On December 1, Strategy's stock price fell more than 10% intraday, hitting a low of $156.

At the same time, the company also announced an updated earnings forecast for fiscal year 2025, estimating that if the price of bitcoin ranges from $85,000 to $110,000 by the end of 2025, Strategy's targets for fiscal 2025 are as follows: operating revenue of about $7 billions to $9.5 billions, net income of about $5.5 billions to $6.3 billions, and diluted earnings per share of $17.0 to $19.0 per common share.

This reserve arrangement actually reflects a turning point in Strategy's (MSTR) asset allocation logic. Over the past four years, the company's coin-holding model has been to continuously raise funds in the capital market through the issuance of common stock, preferred stock, and convertible bonds, and then convert almost all the raised funds into bitcoin holdings. The core feature of its balance sheet has been high concentration.

However, after establishing a USD reserve, this funding path has been consciously split for the first time. The company still relies on equity and debt instruments for external financing, but the funds are no longer all funneled into bitcoin positions; instead, they are divided into two parts. One part continues to be used to increase BTC holdings and maintain the DAT strategy; the other part is clearly retained in USD, entering a dedicated reserve fund for paying dividends and interest, to stabilize cash flow for the next one to two years.

The former can be seen as a long-term value reserve without interest, while the latter assumes a short-term payment function, providing cash security for the company's various equity and debt instruments.

At the market level, this adjustment can also be seen as a response to a long-standing external concern: in the event of significant bitcoin price volatility and a tightening financing environment, would Strategy be forced to sell its holdings due to cash flow pressure, or even face insolvency risk? The company is trying to show investors that, within a visible time frame, it can maintain solvency without having to "sell coins." Although Strategy's CEO previously stated that bitcoin would only be sold if mNAV fell below 1 and financing was unavailable.

Market Views

Wall Street broker Benchmark stated that the bitcoin price correction has once again triggered routine concerns about the survival ability of major bitcoin holder Strategy, but the company believes such concerns are merely noise that inevitably arises when bitcoin falls. In a report released Monday, analyst Mark Palmer pointed out that critics are confusing short-term volatility with real solvency risk, ignoring the logic of Strategy's balance sheet, which is designed to maximize bitcoin leverage. Strategy holds about 649,870 bitcoins (worth $55.8 billions), while carrying $8.2 billions in ultra-low-cost convertible bonds and $7.6 billions in perpetual preferred shares. Its debt is manageable, and the company's structure is much more robust than critics claim. The perpetual preferred shares are Strategy's core competitive advantage over other digital asset holding companies.

Regarding the repeatedly mentioned crisis threshold, Benchmark pointed out that bitcoin would need to fall to about $12,700 and remain at that low level to trigger substantial risk—a drop of 86%—which the institution believes is extremely unlikely in the current institutionally dominated market. Palmer reiterated his "Buy" rating on the stock and a target price of $705 (based on an assumed bitcoin price of $225,000 in 2026), stating that the recent correction has not changed his view.

CryptoQuant founder and CEO Ki Young Ju posted that it would not be wise for Strategy to sell BTC when mNAV (the ratio of the company's value to the value of its bitcoin holdings) is below 1. Although this move might benefit MSTR shareholders in the short term, it would ultimately harm BTC and, in turn, MSTR's interests, creating a death spiral.

Polygon co-founder and Polygon Foundation CEO Sandeep Nailwal posted: "I hope Strategy (MSTR) does not become the 'LUNA disaster' protagonist of this cycle. This industry cannot afford another publicly played out death spiral involving Wall Street and retail investors. Hopefully Michael Saylor can work some of that 'Wall Street magic' to stabilize the situation."