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S&P Calls It Junk, Market Calls It Gold: Why MSTR Soars 114% With Bitcoin
This article was first published on The Bit Journal: Why did the MSTR stock price double despite being given a dismal S&P credit rating, and what does that say about the status of Bitcoin as a financial asset?
The world’s leading Bitcoin treasury firm, Strategy, saw its MSTR stock price double despite receiving a dismal S&P credit rating of B-. The firm maintained that Strategy’s weak liquidity and narrow focus could easily lead to its future collapse.
According to a post by Strategy on the social media platform X, S&P Global Ratings placed the Bitcoin treasury firm in speculative, non-investment-grade territory — aka “junk-bond” status — despite the outlook remaining stable. However, Strategy CEO Michael Saylor noted that his company was the first digital asset treasury to receive an S&P credit rating, which, he said, was a clear indication of the company’s ongoing success.
Confidence in Strategy’s Long-Term Strategy
Despite the low rating, which indicates a lack of confidence, Strategy’s MSTR stock price turned positive, rising 2.27%, implying about 114% upside from Friday’s close and suggesting that investors had confidence in the firm’s long-term Bitcoin strategy. The special attention from investors at a time when the S&P credit rating took a dim view could serve as a milestone for the cryptocurrency industry.
The firm defended its decision to give a poor S&P credit rating, citing Strategy’s balance sheet as overwhelmingly tied to Bitcoin and stating that its low dollar liquidity and negative risk-adjusted capital outweighed strong access to prudent debt management and capital markets. S&P opines that the company’s structure creates an inherent currency mismatch: most assets are held in bitcoin, while debt and dividend obligations are denominated in U.S. dollars. Commenting on their report, the firm stated in their press release:
“We view Strategy’s high bitcoin concentration, narrow business focus, weak risk-adjusted capitalization, and low U.S. dollar liquidity as weaknesses.”
Facts the S&P Credit Rating Overlooked
In reaction to the rating, Matthew Sigel, head of digital assets research at VanEck, posted on X saying:
“The company can service debt for now, but is vulnerable to shocks.”
However, crypto economics are known to live and die on community hype, and Strategy’s branding could be an “X factor” that the S&P credit rating may not have incorporated into its system. Even now, new digital asset treasury firms are still referred to as “MicroStrategies,” a nod to the original company’s outsized reputation. Also, the S&P credit rating may have overlooked that TradFi is increasingly integrated with the broader crypto industry.
Conclusion
Despite the firm’s dismal S&P credit rating, Strategy assigned it a stable outlook, citing its past success in maintaining access to capital markets and managing debt maturities. With the next major maturity date set for 2028, the Bitcoin treasury firm has room to improve, as long as Bitcoin’s price doesn’t collapse.
Glossary of Key Terms
Strategy: A company that has a dual business model: it sells AI-powered enterprise analytics software, but its primary Strategy is to hold a large amount of Bitcoin on its balance sheet.
MSTR: MSTR is the stock ticker for Strategy Inc. (formerly MicroStrategy).
Bitcoin treasury firm: A publicly traded corporation that holds a significant amount of its corporate assets in Bitcoin as part of its treasury strategy.
Frequently Asked Questions about Strategy and Bitcoin Treasury Companies
What is Strategy (MicroStrategy) famous for?
Initially, the company focused on developing software for data mining and business intelligence. Currently, the firm’s Strategy involves leveraging its balance sheet to acquire BTC as a primary treasury reserve asset.
How do Bitcoin treasury companies work?
At their core, Bitcoin treasury companies are firms dedicated to accumulating a digital asset, regardless of whether that was the business’s original intent.
What is MicroStrategy’s Bitcoin Strategy?
MicroStrategy raises capital through convertible notes to buy Bitcoin, which helps Bitcoin’s price rise as they buy a lot of it. The MSTR stock price rises as the value of their bitcoin assets increases, and with a higher stock price, Strategy can raise even more money and buy more bitcoin.
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