Strategy (MSTR) Receives ‘Junk Bond’ Rating Despite Continued Bitcoin Accumulation
S&P Global Ratings has given Strategy Inc. (NASDAQ: MSTR), the Bitcoin treasury company run by Michael Saylor, its first credit rating.
Quick overview
- S&P Global Ratings has assigned Strategy Inc. a 'B-' credit rating, marking its first evaluation of a Bitcoin-focused treasury company.
- The rating reflects concerns over Strategy's high Bitcoin concentration, narrow business focus, and weak liquidity, placing it in the speculative 'junk bond' category.
- Despite the rating, Strategy's stock price increased by 2.27% on Monday, indicating continued investor interest amid challenges.
- The company faces a steep path to upgrade its rating, needing improvements in liquidity and reduced reliance on convertible debt.
S&P Global Ratings has given Strategy Inc. (NASDAQ: MSTR), the Bitcoin treasury company run by Michael Saylor, its first credit rating. The company got a “B-” rating, which puts it in the speculative, non-investment-grade range, also known as “junk bond” status.
The rating, which was revealed on Monday, is a big deal since it’s the first time S&P Global has looked at a Bitcoin-focused treasury company. This sets a standard for traditional financial institutions to adopt when looking at business models that are based on cryptocurrencies.
S&P Cites Key Concerns for Strategy’s Business
S&P Global found several problems with Strategy’s business structure, including as “high Bitcoin concentration, narrow business focus, weak risk-adjusted capitalization, and low US dollar liquidity.” The rating agency stressed a “inherent currency mismatch”: all of Strategy’s debt is in US dollars, yet the company has gotten 640,808 Bitcoin mostly through equity and debt funding.
The company’s dollar reserves are mostly used for its software division, which makes about as much money as it spends. This structure could make things more dangerous if convertible debt comes due while the price of Bitcoin BTC/USD is very low, which could mean having to sell holdings at bad prices.
Path to BBB- Upgrade Remains Steep
Strategy would have to go up six rating levels, from B- to BBB-, to not be considered a junk bond. S&P Global said that an upgrade is unlikely to happen in the next 12 months. However, they did say that a higher rating would be possible if US dollar liquidity improves, reliance on convertible debt decreases, and access to capital markets remains solid.
On the other hand, the grade could get worse if Strategy’s access to capital markets gets worse or if it can’t pay for its operations.
Strategy (MSTR) Stock Performance
Even though Strategy had a bad rating, its stock price went up 2.27% on Monday, ending the day at $295.67. This shows that investors are still interested. The corporation just announced that it bought another 390 Bitcoin for about $43.4 million between October 21 and 26. This was done without issuing new common stock, which would have diluted the value of existing shares.
But in 2025, Strategy will have to deal with new problems. Despite Bitcoin’s 23% rise this year, the stock has dropped 13% this year and is now trading 37.8% below its peak of $473.83 in November 2024. This difference shows that Strategy’s premium over net asset value (NAV) has dropped a lot.
Premium Erosion Amid Competition
At its highest point in late 2024, Strategy was worth almost four times what it was worth as an asset. As of October 27, that premium has dropped to only 1.32 times NAV because several other companies have entered the Bitcoin treasury field, which has weakened Strategy’s first-mover advantage.
For investors that acquired at the highest premium levels, the NAV compression has mostly canceled out the benefits from Bitcoin’s rise, with MSTR only yielding 3% year-to-date compared to BTC’s 23% gain.
Industry Implications
The B- rating is the same as the score S&P Global gave to Sky Protocol (previously MakerDAO) in August. This shows that rating agencies are just as skeptical about Bitcoin-based business ideas. For now, Strategy’s grade stays the same, but the company has to deal with recurring problems including managing its debt, worrying about its cash flow, and a competitive field that is getting more congested.
As the Bitcoin treasury model goes through its first genuine stress test, Strategy’s ability to keep the market’s trust while managing its complicated capital structure will decide if it stays the “gold standard” in this new field.
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