The stock of the company now known as Strategy (MSTR) — formerly MicroStrategy — spent virtually all of 2024 soaring. The reason: It’s a way to play Bitcoin. The company bought bitcoins, bought more, issued stock and debt to buy even more, and in 2025 issued preferred stock to buy still more. Strategy is much less a few businesses under a single banner than just a means to play Bitcoin.
But that structure and the way CEO Michael Saylor has run the company have created a variety of risks for investors in Strategy. Here are three of the biggest risks of buying this Bitcoin proxy.
Below are three of the largest risks for Strategy and why investors need to be extra cautious. If you’re considering an investment in Strategy, you should be aware of the potential pitfalls and consider speaking with a financial advisor.
Perhaps the most obvious and significant risk to investors is that the total value of the company’s stock, its market cap, is worth vastly more than the net asset value of the company.
The net asset value of Strategy was $43.72 billion as of year-end 2024, after adjusting for the fair market value of the company’s Bitcoin holdings. That compares to a total market capitalization of $71.2 billion at the close of the year — an overvaluation of around 63 percent. To put it another way, investors are paying about 63 percent more to own Bitcoin through Strategy stock than buying the cryptocurrency or a Bitcoin ETF directly. The move makes little sense.
Strategy management are well aware of the disconnect and are taking advantage in a way that benefits shareholders. The company actually has an authorization to sell the stock and is using it to buy more bitcoins. The company issued $15.1 billion in stock in the fourth quarter and a further $2.4 billion through Feb. 2, 2025. It can raise a further $4.3 billion through stock sales.
These proceeds are then plowed back into purchases of Bitcoin. In the fourth quarter alone, the company bought $20.5 billion in bitcoins and purchased more in the first quarter of 2025.
In effect, Strategy is selling its overpriced stock and buying relatively underpriced bitcoins. It makes sense to take advantage of shareholders who are willing to overvalue the stock and then to purchase more of what they’re overvaluing, the bitcoins. And the practice should continue, since the company is increasing the total number of shares it can issue.
But if Strategy can’t continue to sell overpriced stock to continue its Bitcoin buying binge, what happens to the stock then? If something can’t continue, it eventually won’t.
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Strategy has issued convertible debt to bootstrap its way to a high stock price. With convertible bonds, a company typically receives a lower-than-average interest rate and promises the bond buyer to convert the bonds to stock later, often at a more favorable price. So “converts” can be favorable for companies that don’t have strong cash flow and that can pay with stock instead.
Strategy has six series of convertible debt outstanding at interest rates ranging from 0 percent to 2.25 percent. It also recently issued convertible preferred stock, which acts much like a bond, but it had to do so at a significant discount, even though the preferreds pay a high 8 percent coupon. The bonds and the preferreds mean that the company has to pay interest regularly.
But Strategy’s underlying business is weak. In 2024, for example, it generated an operating loss of more than $60 million, not counting write-offs on digital assets such as Bitcoin. Yet it had interest expenses for the year of around $62 million, meaning its businesses didn’t generate the cash to pay its interest expenses, which were paid only from existing cash or new financing.
And that gets to the heart of one weakness here: Strategy needs access to capital markets to continue to fund its growth. If the company is unable to keep funding its growth, will investors continue to give the stock its inflated valuation? And if it has to sell bitcoins or stock to settle up its convertible debt, will it be able to do so at favorable prices? The answer to those questions depends on the market at some future point, and Bitcoin’s volatility makes it all much worse.
It’s not a secret that Bitcoin is volatile — that’s inherent to virtually all cryptocurrencies. Cryptocurrencies are not based on the hard assets and cash flow of an underlying business, the way stocks are. Instead, the price of cryptocurrencies is supported only by the demand of traders who want to buy them and, ideally, sell them to someone else later on for a profit. That is, cryptocurrencies are supported only by traders’ sentiment, making them highly volatile.
Combined with the high valuation of Strategy — where the stock is valued much greater than its holdings — the volatility of Bitcoin could destroy the company if it were to fall significantly. In theory, a 1 percent decline in Bitcoin’s price could result in a 1.62 percent decline in Strategy’s stock. If traders anticipate a decline in Bitcoin, they could try to hit the exits on the stock before things become much worse, given the overvaluation and potential significant downside.
With the extremely volatile price history of Bitcoin — it’s plunged in a given calendar year by more than 60 percent on three different occasions — it’s only a question of time before it plummets significantly again. Will that drop be enough to wipe out Strategy? Only time will tell.
Strategy is a hot stock play for the moment, and if Bitcoin continues to rally, the stock may continue to perform quite well. But not every hot stock is worth investing in. Consider consulting with a financial advisor before making any major investment decisions.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
