The Unraveling of MicroStrategy's 'Infinite Money Glitch': How the Bitcoin Giant Faces Existential Threat

The Rise and Fall of a Bitcoin Titan

Just two months ago, the market was debating whether MicroStrategy might soon join the S&P 500. But if a week is a long time in politics, then two months is an eternity in crypto.

Back in the summer, MicroStrategy's market cap exceeded that of nearly every other US stock outside the index, and inclusion in the next quarterly reshuffle looked plausible. Executive chair Michael Saylor had seemingly pulled off a remarkable feat, transforming a humdrum business intelligence software vendor into an iconic bitcoin vehicle, and investors had rewarded the pivot with an over twentyfold gain.

From Index Inclusion to Survival Questions

Today the conversation around MicroStrategy has shifted from index inclusion to whether the company can survive — and what its troubles mean for the wider crypto ecosystem. As analysts noted about the crash in "digital asset treasury" companies:

"With Saylor's company now worth less than the bitcoin it holds, investors worry that a business model that relied on a virtuous circle of rising crypto prices and massive share and debt issuance is now unravelling."

"There's going to be a fire sale at these companies; it's going to get worse. It's a vicious cycle. As soon as the prices start tanking, it's a race to the bottom."

The MSCI Index Threat Looms Large

The biggest immediate threat for MicroStrategy comes from an upcoming MSCI index review expected in mid-January. Last month MSCI proposed ejecting any company from its Global Investable Market Indexes if digital assets constitute half or more of total assets. The argument is that such businesses resemble investment funds rather than operating companies, and investment funds don't belong in equity indices.

JPMorgan analysts warned last week that MicroStrategy could be removed from both the MSCI USA and Nasdaq 100. Up to $2.8 billion of passive money could be forced to sell if MSCI proceeds, with potentially billions more following if other index providers adopt the same position. Passive funds hold about $9 billion of the common stock.

For a company that has transmogrified into a bitcoin investment vehicle holding roughly 650,000 bitcoin — more than 3% of total supply and worth around $50 billion — this index risk is existential.

The Collapse of the Financial Model

The core of MicroStrategy's financial model revolves around issuing common stock and other securities into capital markets and then using the proceeds to buy more bitcoin. This "dilution-as-a-strategy" (DaaS) approach works only if (a) the shares trade at a substantial premium to NAV and (b) access to capital markets remains open.

For several years the premium was enormous, at one stage exceeding three times NAV. It remained at about twice NAV well into 2025. A chunky premium allowed MicroStrategy to sell shares and buy bitcoin at what amounted to an economic discount, meaning that purchases were accretive for existing holders.

The cycle looked self-reinforcing and self-perpetuating: a high premium funded bitcoin purchases, which drove up the bitcoin price, which attracted more investors, which sustained the premium, and so on. Saylor and his team earned a reputation for having discovered an "infinite money glitch".

Why the Premium Collapsed

The premium to NAV has finally collapsed under the weight of two forces:

First, the launch of spot bitcoin ETFs gave investors a cheap, clean way to gain unadulterated bitcoin exposure without the complications of owning a corporate wrapper.

Second, MicroStrategy's continuous at-the-market (ATM) equity issuance — the mechanism designed to monetise the premium — gradually eroded that premium by sheer force of supply of new shares. At parity with NAV, issuance creates no value; below NAV, it destroys value.

Structural Weaknesses Exposed

One structural weakness is the procyclical nature of MicroStrategy's buying. The company can raise the most capital when its own share price trades at a premium to the value of its bitcoin, which typically happens when bitcoin itself is strong. That means MicroStrategy tends to buy aggressively when bitcoin is expensive but struggles to raise cash when prices fall.

This leaves the company structurally positioned to accumulate bitcoin near peaks while missing the very dips that savvy investors prize. Indeed, MicroStrategy purchased no bitcoin last week even as the cryptocurrency's price was tumbling.

The Dark Side of Leverage

The company now faces the darker side of leverage. It carries $8 billion of convertible debt, most of which is out of the money, with conversion prices in some cases far above today's share price.

The nightmare scenario is forced bitcoin sales to meet obligations. While the market value of MicroStrategy's holdings far exceeds total debt, bitcoin is not conventional collateral. Even the whiff of a sale by its most high-profile evangelist could wallop the bitcoin price, dragging down MicroStrategy's share price, widening the discount to NAV and prompting further selling.

Then there are the about $700 million in annual preferred-stock dividends that the company is expected to service. With negligible operating cash flow, MicroStrategy must issue new securities to meet these commitments.

The Arithmetic Takes Over

Saylor's alchemy has now started to give way to arithmetic. Absent a turnaround in the bitcoin price, the "infinite money glitch" that created spectacular upside on the way up risks unravelling dramatically on the way down.