MicroStrategy's CEO hints at selling coins! CEO: If the stock price falls below net value and the 800 million dividends cannot be paid, then we will dump.

MicroStrategy CEO Phong Le stated on the What Bitcoin Did show that the company would only consider selling Bitcoin when its stock price falls below its net asset value and it is unable to secure new funding. Le pointed out that if MicroStrategy's market-to-net asset value (mNAV) is below 1 and financing options are exhausted, then dumping Bitcoin becomes mathematically reasonable to protect “Bitcoin earnings per share.” However, he emphasized that this would be a last resort, not a policy change.

mNAV falls below 1 and financing is exhausted: MicroStrategy's dual bottom line for selling coins

(Source: BitcoinTreasuries)

MicroStrategy CEO Phong Le recently clarified the conditions under which the company would sell Bitcoin, marking an important policy clarification for a company that has long promoted “never selling coins” as its core narrative. Le stated on the What Bitcoin Did show that if MicroStrategy's market net asset value (mNAV) falls below 1 and financing options are exhausted, then selling Bitcoin becomes mathematically reasonable.

Market-to-Net Asset Value (mNAV) refers to the ratio of a company's market capitalization to the net asset value of its held Bitcoin. When mNAV is greater than 1, it means that the market is willing to pay a premium for MicroStrategy, believing it to be more valuable than simply holding Bitcoin. This premium comes from MicroStrategy's ability to continuously increase its Bitcoin holdings through issuing stocks and bonds, providing shareholders with leveraged Bitcoin exposure.

However, when the mNAV falls below 1, the situation is completely different. This means that the market believes that the value of MicroStrategy is even less than the Bitcoin it holds, and continuing to issue shares to buy Bitcoin at this time will dilute the interests of existing shareholders. Le's logic is that if issuing new shares will dilute more equity, then selling part of the holdings to fulfill obligations is also acceptable for shareholders.

The Two Main Conditions for MicroStrategy to Sell Bitcoin

mNAV falls below 1: Stock price is below net asset value, issuing new shares will dilute shareholder equity.

Funding channels exhausted: Unable to raise new funds through the issuance of stocks or bonds.

But Le emphasized that this move would be a last resort, not a policy shift. “I don’t want to be a company that sells Bitcoin,” he said, adding that financial discipline must take precedence over emotions when market sentiment is low. This statement preserves flexibility while also conveying to the market that the company still views Bitcoin as a core asset.

800 million dollars annual dividend pressure: the double-edged sword of preferred stocks

Investors are closely watching MicroStrategy's expanding fixed income payments, which are linked to a series of preferred stocks launched this year. Le stated that as the recently issued preferred stocks mature, the annual fixed income payment obligation will approach $750 million to $800 million. This figure is a heavy burden for any company, especially for one whose primary asset is the highly volatile Bitcoin.

Le's plan is to first pay these amounts by issuing new shares at a price higher than the market net asset value (mNAV). He said, “The more dividends we pay from all financial instruments each quarter, the more the market will realize that we will pay these dividends even in a bare market situation. When we do this, the price of these dividends will start to rise.”

This strategy essentially involves using future equity dilution to pay current dividend obligations. As long as MicroStrategy's stock price remains above the premium of mNAV, this model can continue to operate. Investors are willing to accept equity dilution because they believe MicroStrategy can use the funds raised to purchase more Bitcoin, thereby increasing the Bitcoin holdings per share in the long term.

However, this model has a fatal vulnerability. If the price of Bitcoin continues to fall, causing MicroStrategy's mNAV to drop below 1, the company will be unable to raise funds to pay dividends by issuing stocks. At this point, the company has three options: default, issue more debt (which could lead to a credit rating downgrade), or sell Bitcoin. Le's statement is actually paving the way for the third option.

An annual dividend expenditure of 800 million USD means that MicroStrategy needs to raise approximately 800 million USD in new capital each year to maintain operations without touching its Bitcoin reserves. This represents a significant proportion for a company with a market value fluctuating between 20-30 billion USD. This also explains why Le emphasizes the importance of maintaining the mNAV premium.

Core Logic of Business Model: Premium Cycle and Dilution Game

MicroStrategy's business model relies on raising funds when the stock price is above the net asset value and using those funds to purchase Bitcoin, increasing the amount of Bitcoin held per share. This model is extremely effective in a bull market, as investors are willing to pay a high premium for MicroStrategy. At the peak in early 2024, MicroStrategy's market capitalization was 2-3 times higher than the value of its held Bitcoin.

The logic behind this premium is that MicroStrategy can amplify Bitcoin returns through financial engineering. For example, if the price of Bitcoin rises by 50%, and MicroStrategy simultaneously increases its Bitcoin holdings by issuing shares, the amount of Bitcoin held per share may increase even more, thereby providing shareholders with returns that exceed Bitcoin itself.

However, this model also carries the risk of reverse operation. If the price of Bitcoin falls, and the stock price of MicroStrategy falls even more (due to losing the premium), the company will not be able to increase its Bitcoin holdings by issuing stocks. Worse, if there is a need to pay fixed dividend obligations, the company may be forced to sell at low Bitcoin prices, which will further harm shareholder interests.

Setting aside the balance sheet mechanism, Le also defended Bitcoin as a long-term investment concept that is scarce, non-sovereign, and has global appeal. “It is a non-sovereign asset, with limited supply… People from Australia, the United States, Ukraine, Turkey, Argentina, Vietnam, and South Korea—all of them love Bitcoin,” he added. This global narrative is the core belief behind MicroStrategy's long-term holding of Bitcoin.

BTC Credit Dashboard: Assuring Investors' Debt Security

Last week, following the recent fall in Bitcoin prices and the dumping of digital asset bonds, MicroStrategy launched a new “BTC Credit” dashboard to reassure investors. As the largest corporate holder of Bitcoin, the company stated that even if Bitcoin prices remain unchanged, its dividend coverage is sufficient to last for decades.

MicroStrategy claims that even if Bitcoin falls to an average purchase price of about $74,000, its debt will still be adequately secured; even if it falls to $25,000, the debt can still be managed. The timing of the launch of this dashboard is critical, as the market is increasingly concerned about MicroStrategy's financial health, especially against the backdrop of Bitcoin price volatility and significant declines in the company's stock price.

$25,000 is an extreme stress test scenario. If Bitcoin really falls to this level, it would represent a drop of about 70% from the current price. In this case, the value of Bitcoin held by MicroStrategy would shrink significantly, but the company claims that its debt structure remains manageable. This confidence stems from the fact that most of MicroStrategy's debt is in the form of long-term convertible bonds, with maturity dates spread out over the coming years, giving the company ample time to cope with market fluctuations.

However, this dashboard also exposes MicroStrategy's vulnerabilities. The need to launch specialized tools to reassure investors about debt concerns indicates that these concerns have reached a level that requires a formal response. The market's doubts about MicroStrategy's ability to meet its debt obligations in extreme situations are one of the reasons why its stock price has fallen below mNAV.