Institutional investors holding positions in Strategy (NASDAQ: MSTR) are sounding the alarm over the firm’s decision to sell Bitcoin, warning that the move risks triggering a damaging feedback loop that could send both the stock and the cryptocurrency into a sustained decline.
Sources told Congress.net that institutional holders of MSTR shares, including ordinary shares and preferred stock, are “deeply concerned” by the market fallout.
The central fear is that Strategy could be compelled to liquidate further Bitcoin reserves, which would weigh on BTC’s price, in turn damaging MSTR’s balance sheet and potentially forcing yet more sales. Investors have described the scenario as one that could “repeatedly cascade down.”
The anxiety stems from what many analysts describe as a psychologically significant, if financially modest, event. Strategy disclosed that it sold 32 BTC between May 26 and May 31 at an average price of $77,135, generating approximately $2.5 million to help fund dividend payments on STRC, its high yielding perpetual preferred stock. The firm still held more than 843,700 BTC at the end of May, meaning the sale amounted to just 0.004% of total holdings. Despite the negligible scale, the reaction from markets was severe.
MSTR shares dropped more than 9% on Tuesday, extending losses that have now accumulated to nearly 15% across five trading sessions and more than 23% on the month. The stock closed at $136.08, placing it more than 70% below its 52 week high of $457.22. Bitcoin provided little relief, falling approximately 5.8% in the same 24 hour window to trade near $67,288, itself more than 46% off its all time peak of $126,080.
While the announcement initially fuelled concerns that Executive Chairman Michael Saylor was stepping back from his long held Bitcoin accumulation mandate, a number of analysts argued that interpretation missed the broader picture. TD Cowen analysts have maintained a $400 price target on MSTR, implying a potential gain of close to 200% from current levels, though shares have not traded near that mark since August of last year, when Bitcoin was approaching its record high.
The damage was not contained to Strategy. Coinbase (COIN) fell more than 4.5% on Tuesday to close at $173.99, sitting more than 23% lower year to date and nearly 61% below its 52 week peak. Compass Point analysts this week maintained a sell side target of $140 on COIN, implying further downside of roughly 19%. Elsewhere, Ethereum treasury vehicles BitMine Immersion Technologies (BMNR) and Sharplink (SBET) declined 4.62% and 6.14% respectively, while Bitcoin miner CleanSpark (CLSK) shed 6.5% and BTC services firm Fold (FLD) dropped 8.4%.
Significant Risk: The Reflexivity Problem
The deeper concern for institutional investors is structural. Strategy’s entire model is built on Bitcoin appreciation justifying its leveraged exposure. A falling BTC price compresses the value of the firm’s holdings, which tightens the balance sheet, which raises questions about the firm’s ability to service its preferred dividend obligations without liquidating further reserves.
That dynamic, if it takes hold, becomes self reinforcing. Each sale pressures Bitcoin, which pressures MSTR, which may necessitate another sale. Investors who entered the stock expecting a clean, amplified proxy for Bitcoin upside are now confronting the possibility that the leverage works in both directions.
Worst Case Scenario
Should Bitcoin continue its correction from its all time high, the risks facing Strategy compound rapidly. In the most adverse scenario, sustained BTC weakness forces repeated small liquidations to meet dividend obligations, each one chipping away at market confidence and accelerating the downward pressure on both assets. MSTR is already trading more than 70% below its peak.
A prolonged Bitcoin bear phase, combined with mounting obligations across its preferred share structure, could push the stock toward levels that fundamentally impair the firm’s ability to raise fresh capital on favourable terms. At that point, the accumulation strategy that built Strategy’s identity could go into effective reverse, with the balance sheet shrinking rather than growing. For holders across the capital structure, from common shareholders to preferred stock investors, that outcome would represent a near total unravelling of the investment thesis that drew them in.
