Bitcoin stock risks

May 2025 l Choifinance

Bitcoin just broke $111,000 - a new all-time high. The surge past $111,000 in May came briefly before falling back, but the mood is obvious. Crypto Twitter is calling for $150k by year-end. Strategy Inc (formerly MicroStrategy) holds over 553,555 BTC acquired for roughly $37.9 billion at an average of $68,459 per coin. Michael Saylor just raised the company's full-year BTC Yield target from 15% to 25%. Over 70 public companies worldwide have now adopted a Bitcoin treasury model. And I've just sold my entire position in Bitcoin proxy stocks.

This piece explains why.

How the model works - and where it breaks

The Bitcoin treasury model is built on one mechanism. A company sells new shares (or issues convertible debt), takes the cash, and buys Bitcoin. If the stock trades at a premium to the value of its Bitcoin holdings - a ratio called mNAV - then each round of share issuance is accretive. More Bitcoin per share, even after dilution.

Strategy tracks this with a KPI called "BTC Yield," defined as the percentage change in Bitcoin held per diluted share. In Q1 2025 alone, Strategy achieved BTC Yield of 11.0%, with 13.7% year-to-date through April 28. The company raised over $25 billion in FY2025, acquiring roughly 225,000 Bitcoin in the process. In its Q1 earnings call, CEO Phong Le described the company as being "at the forefront" of the Bitcoin treasury standard.

The maths is attractive. When MSTR trades at 2x NAV, every $1 of new shares issued buys $1 of Bitcoin but only dilutes existing shareholders by $0.50 of Bitcoin value. That's $0.50 of value created per share from thin air. At 3x NAV - where MSTR traded in late 2024 - the accretion is even bigger.

But here's what nobody talks about: the model has a kill switch. If mNAV drops to 1.0x, the accretion is zero. Below 1.0x, every new share issued destroys value - you're diluting shareholders to buy Bitcoin at a price that exceeds what the market gives you credit for. The flywheel doesn't just stop. It reverses.

And the path from 3.0x to 1.0x doesn't require a Bitcoin crash. It just requires sentiment to cool.

The premium is already compressing

In October 2024, Strategy's NAV premium hit 2.5x - the highest since February 2021. The stock hit its all-time closing high of $543 on November 21, 2024.

Since then, Bitcoin is up. The stock is down.

That sentence is worth reading twice. Bitcoin has rallied from ~$99,000 in November to $111,000 today, and MSTR has gone from $543 to roughly $370. The premium has been bleeding out for six months even as the underlying asset went up. Strategy's mNAV has been in near continuous decline throughout 2025.

Why? Two reasons. First, dilution. Strategy executed its record $21 billion common stock ATM, adding 301,335 BTC to its balance sheet while achieving a 50% increase in MSTR share price - but that share price increase came mostly in late 2024. Since then, the constant issuance of new shares has weighed on the stock even as Bitcoin climbed. The company is printing equity at an industrial scale to fund purchases.

Second - and this is the bigger problem - competition.

Many other companies are copying

When Strategy was the only listed Bitcoin treasury company, it earned a scarcity premium. If you wanted Bitcoin exposure through the stock market pre-2024 without dealing with Grayscale's discount, MSTR was the only game in town. That justified paying 2-3x NAV.

That scarcity is gone. When Strategy was the only Bitcoin treasury company in the game, this was reflected in its high NAV premium. Now:

Marathon Digital (MARA) holds over 46,376 BTC as of March 2025, making it the second-largest Bitcoin holder among public companies. MARA also mines Bitcoin, so it has actual revenue - but it's also been raising $700 million in convertible notes to buy more Bitcoin.

Metaplanet (3350) in Japan surged 1,923% in 2024 and has been issuing bonds to fund Bitcoin purchases, directly copying Strategy's model for the Asian market.

Semler Scientific (SMLR) - a healthcare diagnostics company - adopted Bitcoin as its primary treasury asset in May 2024 and has already achieved a BTC Yield of 22.2% year-to-date through May 12, 2025. The stock rallied 178% in the six and a half months following its Bitcoin Standard announcement.

Twenty One Capital (XXI) just launched on the NYSE as a pure-play Bitcoin treasury vehicle, backed by Tether money.

Then there's GameStop, Trump Media, and a growing list of smaller firms all racing to put Bitcoin on their balance sheets. The more companies that do this, the less unique Strategy's offering becomes - and the less reason there is for investors to pay 2x for MSTR when they can get similar Bitcoin-per-share exposure through SMLR at an mNAV of just 1.25, or Metaplanet, or soon through half a dozen others.

And on top of that, spot Bitcoin ETFs are right there. The iShares Bitcoin ETF (IBIT) gives you 1:1 Bitcoin exposure through a normal brokerage account at a 0.25% fee. No premium. No dilution risk. No convertible debt structure. If you simply want Bitcoin, you no longer need MSTR.

The dilution problem gets worse as the stack grows

This is the structural ceiling that VanEck's digital assets team flagged and most retail investors haven't thought about.

In August 2021, Strategy needed just 2.6 BTC to generate one basis point of Bitcoin yield. By May 2025, that figure had ballooned to 58 BTC. In dollar terms, the capital required rose from around $126,000 to $5.5 million for the same unit of yield.

Each additional Bitcoin contributes less marginal yield to the per-share metric because the denominator (total BTC held) keeps growing. It's the same principle as why a hedge fund that returns 50% at $100 million AUM can't do it at $50 billion. Scale kills alpha. Strategy now holds over 550,000 BTC. Getting from 550,000 to 600,000 requires roughly $5 billion in capital raising. The yield that generates, per share, is a fraction of what the same dollar amount produced three years ago.

Strategy has also layered on complexity through its capital structure. Beyond common equity (MSTR), the company now trades STRD, STRK, STRC, and STRF - multiple classes of preferred stock and debt instruments, each with different claims on the underlying Bitcoin. Strategy embeds redemption options that let the company buy back convertible notes at face value plus accrued interest once the stock trades at 130% of the strike price. The convertible debt stack carries embedded option value that moves with MSTR's volatility. The more instruments outstanding, the harder it becomes to work out what a single common share is actually worth relative to the Bitcoin underneath it.

What happens if Bitcoin drops 30%?

This is the scenario I keep coming back to. It hasn't happened yet - Bitcoin is at all-time highs. But it has happened in every prior cycle. The 2017 peak saw an 87.25% decline. The 2022 crash reached 78.65%. Even the mildest drawdown in Bitcoin's history was around 50%.

If Bitcoin falls from $111,000 to $78,000 - a 30% correction, modest by crypto standards - here's what happens to MSTR:

The Bitcoin on the balance sheet loses ~30% of its value. But the stock doesn't just fall 30%. It falls further, because the NAV premium compresses at the same time. Investors who paid 2x NAV for leveraged upside don't stick around for leveraged downside. They sell the stock, which pushes mNAV lower, which makes new share issuance less accretive (or dilutive), which removes the growth engine, which makes the stock less attractive, which pushes mNAV lower still. It's reflexive.

Strategy's NAV premium has maintained a correlation of 0.52 to Bitcoin with a beta of 1.77. In plain English: when Bitcoin goes up 10%, the premium tends to expand by ~18%. But the reverse is also true. A Bitcoin decline compresses the premium at nearly 2x the rate.

In MSTR's own history, this already played out. In the 2022 crypto winter, Bitcoin fell roughly 65% while MSTR dropped even harder - the premium collapsed alongside the asset.

Why I sold

I ran a portfolio of Bitcoin proxy equities - around £6000 across MSTR and similar names. The thesis was simple: leveraged Bitcoin exposure through the stock market. It worked well through late 2024. MSTR's 440% gain that year far outpaced Bitcoin's 132%.

But the premium compression I've described here was already visible by early 2025. The mNAV was declining even as Bitcoin set new highs. The copycat was also destroying Strategy's scarcity value. The share dilution was speeding up. And the spot ETFs had removed the access premium entirely.

I don't need 2x NAV exposure to something I can own at 1x through IBIT. And I definitely don't want to hold a stock where a 30% Bitcoin pullback - which has happened in every single cycle - could translate into a 50-60% drawdown in my position because of premium collapse layered on top of the underlying asset decline.

The risk-reward has flipped. In 2023 and early 2024, MSTR may be the best way to play Bitcoin. In May 2025, at compressed premiums with 70+ competitors and spot ETFs trading freely, it's one of the worst. The upside is capped (where does the premium re-expand to, with this much competition?) and the downside is made worse by leverage (leveraged exposure plus premium compression).

Bitcoin might go to $150,000 this year. If it does, MSTR will probably rally too. But the days of MSTR outperforming Bitcoin by 3-4x are over in my opinion.