When Strategy stock plunged more than 11% on Tuesday morning, fears of a potential forced liquidation from the self-described "Bitcoin Treasury" company spread across markets.

While those fears are not unfounded—as the company is the largest corporate entity holding Bitcoin—concerns may be overblown. 

That’s because structural safeguards make a forced liquidation scenario for Strategy “highly unlikely,” according to analysts at The Kobeissi Letter

The way "convertible notes are structured" with Strategy lends credence to this assertion, The Kobeissi Letter wrote on X on Tuesday.

A convertible note is a short-term debt instrument that converts into equity, typically used to delay discussions about a company's valuation. 

Strategy raises capital through convertible notes, including zero-coupon bonds—such as its $2 billion offering maturing in 2030, which can be converted to equity at an initial rate of $433.43 per share.

In effect, this enables the company to secure capital without immediate shareholder dilution.

Strategy holds approximately 499,096 Bitcoin worth about $44.4 billion, representing roughly 2.3% of the asset’s circulating supply.

Its Bitcoin holdings are backed by $8.2 billion in convertible debt, including zero-coupon notes and low-interest bonds, with maturities extending through 2028 and 2030.

That makes the company’s debt "highly tied to Bitcoin," Trevor Koverko, co-founder of security tokens firm Polymath, told Decrypt.

The broader crypto market rout, which triggered hundreds of millions in forced liquidations this week, erased $3.7 billion from the value of Strategy’s Bitcoin holdings.

"While not an immediate threat, prolonged weakness could pressure its ability to meet obligations,” Koverko said. “The key watchpoints are collateral requirements and refinancing options."

Although bankruptcy or shareholder-approved dissolution could theoretically trigger a liquidation, Strategy’s ability to raise equity—securing $1.8 billion during Bitcoin’s 2022 downturn—makes this scenario unlikely.

Another factor, according to The Kobeissi Letter, is Strategy co-founder and chairman Michael Saylor's 46.8% voting stake. Saylor's stake makes it "almost impossible to pass a shareholder vote" without his say-so, the analysts said.

In Q3 2024, Strategy reported $116.1 million in software revenue but posted a net loss of $340.2 million, largely due to non-cash Bitcoin impairment charges reflecting the volatile nature of its holdings.

Strategy’s model is inherently reflexive: equity issuance funds Bitcoin purchases, which in turn boosts its net asset value, allowing for continued capital raises.

Still, absent a "Black Swan" event, involuntary Bitcoin sales remain highly unlikely before debt maturities arrive in 2028, leaving insolvency—not margin calls—as the only plausible trigger for a forced liquidation.

Even if Bitcoin fell 50% to $33,000, Strategy’s assets would still outweigh its debt by over 100%, the Kobeissi Letter notes.

Edited by Sebastian Sinclair

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