MicroStrategy Price Plunge Analysis: Facing 4 Potential "Death Spirals"

Article by Lin Wanwan

Lately, holders of MSTR (MicroStrategy) are probably losing sleep.

This once worshipped "Bitcoin Central Bank" has experienced a stock price bloodbath. With Bitcoin plummeting from its all-time high of $120,000, MSTR's stock price and market value have plummeted by over 60% in a short period, with the possibility of being removed from the MSCI stock index.

The price drop of the coin, the halving of the stock price, are just superficial. What truly makes Wall Street nervous is the increasing signs that MSTR is being dragged into a currency power struggle.

This is not an exaggeration.

Over the past few months, many seemingly unrelated events have begun to connect: JPMorgan was accused of significantly increasing its short position on MSTR; users experienced delivery delays when transferring MSTR stocks from JPM; the derivatives market frequently suppressed Bitcoin; policy discussions around the "Treasury Stablecoin" and "Bitcoin Reserve Model" quickly intensified;

And these are not isolated incidents.

MSTR is standing on the fault line between two U.S. monetary systems.

On one side of the power struggle is the old system: the Federal Reserve + Wall Street + commercial banks (with JPMorgan at its core); on the other side is the emerging new system: the Treasury Department + stablecoin system + a financial system collateralized by Bitcoin for the long term.

In this structural conflict, Bitcoin is not the target but the battleground of the power struggle. And MSTR is the key bridge in the conflict: it converts the traditional institution's dollar and debt structure into Bitcoin exposure.

If the new system is established, MSTR is the core adapter; if the old system stabilizes, MSTR is the node that must be suppressed.

Therefore, MSTR's recent plunge is not just a simple asset fluctuation; behind it is the combination of three forces: the natural adjustment of Bitcoin's price; the vulnerability of MSTR's own risk structure; and the conflict overflow caused by the internal power shift within the U.S. dollar system.

Bitcoin has strengthened the Treasury Department's future currency architecture while weakening the Federal Reserve's architecture. The government faces a difficult choice: if it wants to maintain the opportunity for low-cost accumulation, it needs to allow JPM to continue to suppress Bitcoin.

Therefore, the tactics of hunting MSTR are systemic. JPMorgan understands this game too well because they set the rules. They have put MSTR on the dissecting table, clearly separating its veins (cash flow), skeleton (debt structure), and soul (market belief).

Here we break down the four possible "death poses" that MSTR may face, which are also the four death certificates carefully prepared by the old order for MSTR.

Posture One: Robbing the Fire

This is the most intuitive and most discussed pattern in the market: if BTC keeps plummeting, MSTR leverages itself, the stock price keeps falling, leading to a loss of refinancing capability, ultimately resulting in a chain collapse.

This logic is straightforward but not the most core issue.

Because everyone knows that "if BTC falls too much, MSTR will be in trouble," but few people know: to what extent does BTC need to fall for MSTR to go from "rock-solid" to "unstable."

MSTR's asset-liability structure has three key numbers:

Total BTC position exceeds 650k coins (approximately 3% of the total Bitcoin supply)

Average position cost is around $74,400

Some debt carries implicit price risk (although not liquidation, it affects net assets)

Many stories of "MSTR going to zero" treat it as the forced liquidation style of exchange contracts, but in fact, MSTR does not have a liquidation price, but it does have a "narrative liquidation price."

What does that mean?

Even if creditors will not liquidate him, the market will liquidate his stock price. When the stock price falls to a certain level, he will not be able to issue more debt or convertible bonds to continue to supplement the position.

The old forces like JPMorgan are teaming up to short MSTR through the US stock options market. Their tactics are simple: take advantage of the Bitcoin pullback to aggressively dump MSTR, creating panic. They have only one goal: to break Michael Saylor's myth.

This is MSTR's first lightning strike point: when the Bitcoin price drops to a point where the outside world is no longer willing to give him money.

Posture Two: Debt Collection

Before talking about convertible bonds, we first need to understand how MSTR's CEO Michael Saylor's "magic" transformed.

Many novices think MSTR simply buys coins with the money it earns, which is wrong. MSTR is playing an extremely bold "leveraged arbitrage game."

Saylor's core strategy is to issue Convertible Notes, borrow dollars, and buy Bitcoin.

MSTR has raised a whopping $2.08 billion in funding this year, a scale that is extremely rare in annual fundraising for U.S. public companies. The sources of funding are $11.9 billion from MSTR common stock, $6.9 billion from preferred stock, and $2 billion from convertible bonds.

It may sound ordinary, but the devil is in the details.

The interest given to investors in these bonds is extremely low (some are even less than 1%). Why would investors buy? Because these bonds come with a "call option." If MSTR's stock price rises, bondholders can convert the bonds into stock, making a big profit; if the stock price does not rise, MSTR will repay the principal and interest at maturity.

This is the famous "flywheel": issuing bonds to buy coins, the coin price rises, MSTR's stock price soars, bondholders are happy, stock premiums are high, more bonds are issued again, and more coins are bought.

This is the so-called "upward spiral." However, wherever there is an upward spiral, there will inevitably be a death spiral.

This kind of explosive posture is called "forced deleveraging under liquidity depletion."

Imagine, if in some future year, Bitcoin enters a long period of consolidation (no need for a crash, just a consolidation). At this time, the old bonds are due. When bondholders see that MSTR's stock price has fallen below the conversion price.

Bondholders are not philanthropists; they are Wall Street vampires. At this point, they will never choose to convert the bonds into stock. They coldly say, "Pay up. Cash is needed."

Does MSTR have cash? No. Its cash has been converted into Bitcoin.

At this point, MSTR faces a desperate choice: either borrow new money to repay the old debt. But because the coin price is low, market sentiment is poor, the interest on the new bonds will be exorbitant, directly consuming the meager cash flow from its software business.

Or sell coins to repay the debt.

Once MSTR is forced to announce "selling Bitcoin to repay debt," it is like launching a nuclear bomb into the market.

The market will panic: "The whale is capitulating!" Panic leads to a coin price drop, the coin price drop leads to a sharp drop in MSTR's stock price, the stock price drop leads to more bonds being unconvertible, and more bondholders demanding repayment.

This is the "Soros-style" sniper moment.

This type of rug pull is the most dangerous because it doesn't require a Bitcoin crash to trigger; it only needs "time." When the debt maturity date coincides with a period of market quietness, the sound of the funding chain breaking will be even crisper than breaking glass.

Posture Three: Heartbreaker

If the second posture is described as "out of money," then the third posture is "out of trust."

This is currently MSTR's biggest risk and the blind spot most overlooked by retail investors: Premium.

Let me walk you through an example. You buy a share of MSTR for $100. However, out of this $100, only $50 worth of Bitcoin is actually included, while the remaining $50 is what?

It's air. Or more pleasantly put, it's a "faith premium."

Why are people willing to pay double the price to buy Bitcoin?

In a spot ETF like Blackrock's IBIT before it came out, it was because there was no choice, regulatory institutions could only buy stocks. After the spot ETF came out, people continued to buy because they believed Saylor could "accumulate Bitcoin through debt issuance" and not just hoard it.

However, this logic has a fatal flaw.

MSTR's stock price is built on the narrative that "I can borrow cheap money to buy Bitcoin." Once this narrative is broken, the premium will return.

Imagine this: what if Wall Street continues to suppress, and the White House pressures MSTR to surrender its chips? If the SEC suddenly releases a document stating, "Publicly traded companies holding assets is non-compliant," then in that instant, everyone's faith has collapsed.

This type of rug pull is called the "Davis double kill."

At that moment, the market will ask itself a soul-searching question: "Why am I spending $2 to buy something worth $1? Why not buy Blackrock's ETF? It's still a 1:1 ratio."

Once this thought becomes a consensus, MSTR's premium will quickly revert from the current 2.5x, 3x back to 1x, and even drop to 0.9x (discount) due to its corporate entity having operational risks.

This means that even if the price of Bitcoin doesn't drop by a penny, MSTR's stock price could be halved directly.

This is the collapse of narrative. It's not as gory as a debt default, but it's more gut-wrenching. You watch your Bitcoin holding stay steady, but your MSTR in your account shrinks by 60%. You start to question your life choices. This is called "Valuation Massacre."

Posture Four: Close the Door

The fourth posture is the most covert, the least known, but also the most ironic.

What is MSTR doing now? It is desperately trying to do what? It is desperately trying to increase its market cap, attempting to squeeze into more indices, such as the already squeezed MSCI Stock Index and the Nasdaq, such as the S&P 500.

Many people cheer: "Once in the S&P 500, there are trillions of passive funds that must buy it, and the stock price will become a perpetual motion machine!"

As the saying goes, fortune lies where misfortune lurks.

Because by entering a U.S. stock index, MSTR is no longer a simple pump stock; it has become a screw in the U.S. stock financial system structure. Wall Street is shorting MSTR with its left hand and releasing news of MSTR being kicked out of the index with its right hand, causing retail panic selling.

MSTR is now in a bind. It wanted to use Wall Street's money, but instead got locked out by Wall Street's rules.

It wanted to climb the ladder using Wall Street's rules, but it may ultimately die by Wall Street's rules.

Epilogue: Palace Intrigue Destiny

Michael Saylor is a genius and a madman. He saw through the essence of fiat currency depreciation, seized the dividend of the times, and turned a mediocre software company into Noah's Ark carrying the dreams of millions of gamblers.

However, the amount of Bitcoin he holds has far exceeded the capacity this company can bear.

Many in the market are already speculating that the U.S. government may directly invest in MSTR.

The method may involve directly exchanging MSTR's equity for U.S. Treasury bonds, supporting MSTR in issuing nationally endorsed preferred stock, or even direct administrative intervention to forcibly elevate its credit rating.

The climax of this drama is not yet over. The palace intrigue between the old and new U.S. financial orders is still ongoing. MSTR's structure is fragile, long in volatility, short in time.

As long as Wall Street unscrews one of MSTR's screws, then the four postures we mentioned earlier: price collapse, debt default, premium disappearance, index mauling, will all cause MSTR's structure to become imbalanced in a short period of time.

But on the flip side: when the chain is in full swing, it may become one of the most dynamic targets in the global capital market.

This is the allure of MSTR, but it is also its danger.

Sources:

1. Trump‘s Gambit: The Quiet War Between the White House and JPMorgan