Strategy Warns: Extended Crypto Downturn Could Force Bitcoin Sell-Off

When the market bleeds, even diamond hands check their wallets.

The Contrarian Signal Everyone's Ignoring

A prominent trading framework is flashing a warning most hodlers don't want to see. Its core thesis? A prolonged slump across digital assets might not be a buying opportunity—it could be the trigger for a cascade of Bitcoin sales. The model suggests that beneath the surface-level 'buy the dip' mantra, sustained pressure creates a different, more mechanical reality.

Pressure Cooker Dynamics

Forget simple panic. This is about structural strain. Extended downturns test leverage, challenge institutional treasury strategies, and force a brutal reassessment of portfolio allocations. What starts as a hedge or a strategic trim can quickly gain momentum. It's the market's version of a margin call on an entire asset class—where even the strongest convictions get a stress test.

The Bull Case's Hidden Vulnerability

Paradoxically, the very depth of believer commitment might amplify the move. Concentrated holdings mean concentrated exits. When models built for volatility meet a drawn-out bear phase, the output can shift from 'accumulate' to 'liquidate' faster than a trader can say 'inflation hedge.' It's a reminder that in crypto, the most sophisticated strategy sometimes boils down to not being the last one holding the bag when the music stops—a concept Wall Street perfected decades ago, just with fancier suits.

Strategy eyes token lending, considers last-resort sale

But if things get worse, Phong didn’t deny that a Bitcoin sale is absolutely on the table. In a podcast last week, he made that clear, saying there’s a “mathematical side” and an “emotional side” to the decision, and that logic tends to win out. “There’s the mathematical side of me that says that WOULD be absolutely the right thing to do, and there’s the emotional side of me, the market side of me, that says we don’t really want to be the company that’s selling Bitcoin. Generally speaking, for me, the mathematical side wins.”

There’s another option on the table too. Strategy is now looking into lending out its Bitcoin, which is a major change from its original “buy and hold” approach. “When they [traditional finance firms] enter that space, and we have different counterparty, lending Bitcoin is something we would consider and I think we would be enthusiastic about,” Phong said.

As you should know, Strategy was a software company until 2020, when Michael Saylor, the co-founder and current Chairman, made the call to start converting corporate cash into crypto, justified by concerns over inflation.

Wall Street barely understood it at first, but investors chasing Bitcoin exposure quickly bought in. The stock took off, rallying more than 3,500% at its peak and beating every major index.

But now that trade is unraveling. Strategy’s stock has dropped roughly 65% from its all-time high in November 2024, as the Trump-fueled post-election crypto euphoria faded.

At the same time, more companies have jumped on the same crypto treasury model that Saylor pioneered, erasing the uniqueness that once gave Strategy its edge.

The mNAV, which tracks how Strategy’s value compares to its Bitcoin holdings, is now 1.17, dangerously close to flipping negative. That scenario could easily trigger sales of Bitcoin, just to avoid being valued like a zombie stock.

Earnings forecast swings between billions in losses or profits

In October, Strategy told investors it expected Bitcoin to hit $150,000 by the end of 2025. That’s now been revised down to $85,000 to $110,000.

Depending on where Bitcoin lands, operating income could end up being anywhere from a $7 billion loss to a $9.5 billion profit. The company says the wild swing is due to accounting rules that require it to value Bitcoin at market price at the end of each quarter. Net income could range from a $5.5 billion loss to a $6.3 billion gain, while diluted earnings per share may fall between a $17 per-share loss and a $19 profit.

Investors are already reacting. Strategy’s stock jumped 8% on Tuesday, the same day Bitcoin ROSE 6.5% to around $92,000. That bounce followed a new purchase by the company; 130 Bitcoin for $11.7 million, bought using common shares. The buy came after a full week of no activity in its wallet.

Still, the company is now dealing with the side effects of being a Leveraged Bitcoin proxy. Index providers are watching. Analysts at JPMorgan Chase said Strategy could be dropped from major equity indexes, which would mean billions in outflows from passive funds.

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