For years, Michael Saylor has offered bitcoin investors three simple words of advice:
“Never sell your bitcoin.”
Saylor didn’t just repeat that message on podcasts and social media. He built a company around it.
Strategy, formerly known as MicroStrategy, describes itself as the world’s first and largest Bitcoin Treasury Company (the first DAT or digital asset treasury company). Beginning in 2020, the company accumulated an enormous bitcoin reserve through purchases financed by common stock, preferred securities, convertible debt and cash from its software business.
Then, in late June and early July, Strategy did something it had trained investors not to expect:
It sold bitcoin.
The company sold 3,588 bitcoin for approximately $216 million. According to Strategy’s regulatory filing, the proceeds were used to fund preferred-stock distributions and replenish the portion of its U.S. dollar reserve used for those payments.
This was not a conventional margin call. No lender seized Strategy’s bitcoin or automatically liquidated its holdings when the price crossed a predetermined threshold.
Strategy still had choices. Management decided that selling some bitcoin was more attractive than issuing additional securities under unfavorable market conditions.
Even so, the sale represents an important shift. Strategy’s famous accumulation machine has not collapsed, but for the first time, it has meaningfully moved in reverse.
And the lesson for long-term savers isn’t that bitcoin has somehow failed.
It’s that wrapping a volatile asset in leverage, concentration and a complicated capital structure can create risks that owning the asset itself does not.
How Strategy’s bitcoin “perpetual motion machine” worked
Strategy did not become the largest corporate bitcoin holder by simply saving up the profits from its software business.
It developed an innovative capital-markets strategy.
Bloomberg columnist Matt Levine once described Strategy as a kind of “perpetual motion machine.” The simplified version worked something like this:
- Strategy would buy bitcoin.
- Investors would then value Strategy’s shares at more than the value of the bitcoin the company owned.
- Strategy could sell additional shares at that premium and use the proceeds to buy even more bitcoin.
- More bitcoin could make Strategy’s shares more attractive, helping preserve the premium and allowing the process to continue.
This did not literally create money from nothing. Existing shareholders could be diluted, and the entire process depended on investors remaining willing to pay a premium for Strategy’s securities.
But when that premium was sufficiently large, issuing shares could increase the amount of bitcoin represented by each share. That made the arrangement appealing to shareholders, the company and bitcoin advocates alike.
Strategy eventually expanded the machine.
It raised capital through common stock, convertible notes and multiple classes of preferred stock. Each security offered investors a different combination of income, seniority and indirect exposure to bitcoin. (They also had funny names, like STRIKE and STRIFE.)
An important distinction is necessary here: Selling common stock is not borrowing money. But convertible notes are debt. Preferred securities, although technically equity, generally rank ahead of common shares and can carry significant dividend obligations.
Strategy’s capital structure therefore added something bitcoin does not have on its own: Recurring demands for cash.
Bitcoin’s price wasn’t the only thing that changed
By July 5, 2026, Strategy held 843,775 bitcoin purchased for an aggregate cost of approximately $64 billion. Its average purchase price was approximately $75,000 per bitcoin.
Recently, bitcoin’s market price had fallen well below that average, contributing to an $8 billion loss for Strategy during the second quarter of 2026.
But falling below the company’s average purchase price did not automatically force Strategy to sell. Strategy could continue holding bitcoin at an unrealized loss, just as an individual investor can continue holding an asset after its market price falls below the purchase price. Strategy could even, if the funds were available, keep buying bitcoin at lower prices, gradually lowering its cost basis.
The more important change occurred in the market for Strategy’s own securities. For much of the company’s expansion, investors valued Strategy at a premium to the value of its bitcoin. That premium made issuing additional common stock an attractive way to finance more purchases.
Strategy tracks that relationship through a metric called mNAV, or “multiple of net asset value.” In simplified terms, mNAV compares the company’s enterprise value with the value of its bitcoin holdings. When the multiple is well above one, Strategy can potentially issue expensive shares to acquire more bitcoin.
When the multiple approaches or falls below one, issuing additional shares becomes less attractive.
The Wall Street Journal reported that Strategy’s mNAV fell below one in June. It also argued that the company’s published calculation may have overstated its enterprise value by valuing debt and preferred securities at face value rather than their lower market prices.
At the same time, prices for some of Strategy’s preferred securities were falling. The company increased the annual dividend rate on STRC, its largest preferred series, to 12% in an effort to support the security and encourage demand.
Strategy estimated that its preferred-stock dividends and debt interest would require approximately $1.76 billion annually. And those payments must be made in dollars – not bitcoin.
Bitcoin itself does not pay interest or generate earnings. That meant Strategy needed to obtain cash from its software operations, new securities issuance, its dollar reserve or bitcoin sales.
On June 29, the company introduced a new capital-management framework. Its board authorized Strategy to sell bitcoin to fund or replenish its dollar reserve, pay preferred dividends and interest, or repurchase securities.
Strategy CEO Phong Le described the transition as an evolution from “one-way capital issuance to active capital management.”
Put more plainly: Strategy could no longer assume that the best move would always be to issue more securities and buy more bitcoin.
Sometimes, it might have to sell bitcoin to support the securities it had already issued.
The old-fashioned risk inside the new financial machine
Strategy’s approach was innovative. The company created new financial products and gave conventional investors several different ways to gain indirect exposure to bitcoin.
But underneath those innovations was a very old financial tool: Leverage.
A Wall Street veteran once explained leverage to me this way:
“Leverage lets you take the express elevator on the way up – but it also makes you take the elevator shaft on the way down.”
When an asset appreciates, borrowed money can amplify the gains earned on an investor’s original capital.
When the asset declines, leverage can amplify losses while interest, dividends and other financial obligations continue to come due.
That combination is especially risky when the underlying asset is as volatile as bitcoin.
A sharp bitcoin rally can strengthen Strategy’s balance sheet, raise the price of its securities and make additional financing easier to obtain.
A sharp decline can produce the opposite cycle. The value of the company’s assets falls. Its securities become less attractive. Raising new capital becomes more expensive. Yet the obligations created during the expansion remain.
That is how market volatility can become a cash-flow problem.
Concentration leaves little room for error
Leverage is only one part of the story.
The other is concentration.
As of December 31, 2025, Strategy reported approximately $61.64 billion in total assets. Its bitcoin had a carrying value of approximately $58.85 billion.
In other words, bitcoin represented over 95% of the company’s total assets.
Strategy acknowledges the risk directly in its annual report:
“The concentration of our assets in bitcoin limits our ability to mitigate risk that could otherwise be achieved by holding a more diversified portfolio of assets.”
There is nothing accidental about that concentration. Strategy was deliberately built to provide enormous exposure to bitcoin.
That may appeal to investors who understand the structure and want that particular risk profile.
But it is the opposite of diversification!
Even really, really great eggs can create a problem when 95% of them are in the same basket – especially when some of the money used to acquire those eggs came with interest payments, dividend expectations or repayment obligations.
This probably isn’t Strategy’s death knell
Strategy’s bitcoin sale should not be exaggerated.
The 3,588 bitcoin it sold represented only about 0.4% of its holdings immediately before the transactions. After the sale, the company still owned 843,775 bitcoin.
It also reported a $2.55 billion dollar reserve, which it estimated could cover approximately 17 months of expected preferred dividends and debt interest. The board separately authorized up to $1.25 billion in additional bitcoin sales to build that reserve.
Some analysts believe Strategy’s new framework has bought the company considerable time. If bitcoin appreciates and investor demand for Strategy’s securities returns, the company could regain access to more favorable financing and once again become a net bitcoin buyer.
Strategy may survive the current pressure. It may adapt its model successfully. It may even emerge stronger.
Its predicament nevertheless exposes a weakness in the original story.
The “perpetual-motion machine” was an illusion.
It depended on favorable market prices, continued investor enthusiasm and access to affordable capital. When those conditions weakened, Strategy still had to find dollars to meet the obligations it had created.
Selling bitcoin became the solution (worse, selling bitcoin for less than they paid for them!)
So, other than “don’t do that,” what can we learn from Strategy?
What we can learn from Strategy‘s strategy
Strategy’s difficulties do not settle the long-term debate over bitcoin.
They do not prove that bitcoin is worthless, that its price cannot recover or that cryptocurrency doesn’t belong in a diversified portfolio.
What they demonstrate is that the way you obtain exposure can matter nearly as much as the asset itself.
Buying a volatile asset is one kind of risk.
Buying shares in a company that holds that volatile asset while also managing debt, preferred dividends, dilution and continued access to capital markets (all of this while still making and selling a product!) introduces several additional kinds of risk.
That distinction can easily get lost when both investments are described simply as “bitcoin exposure.”
Strategy’s experience also reinforces two principles long-term savers should understand.
First, concentration magnifies consequences.
The observation often attributed to Nobel Prize-winning economist Harry Markowitz is that diversification is “the only free lunch in investing.” Importantly, although diversification cannot guarantee gains or prevent losses, it can reduce the damage caused when a single investment performs poorly.
Second, leverage amplifies outcomes in both directions.
Borrowing to acquire an appreciating asset can look brilliant during a bull market. But our retirement savings must survive complete market cycles, not just the fun parts.
Long-term savings like retirement accounts are generally not the place for YOLO bets, out-of-the-money zero-day calls, margin trades or leveraged financial structures that require the market to remain cooperative. (For another cautionary tale along these same lines, read up on the fall of Three Arrows Capital.)
Look, this isn’t about FUD! My take is different: Cryptocurrency is already volatile and highly speculative. We do not need to add bells and whistles to make it more exciting!
Crypto exposure without the capital-structure circus
Some readers may consider that approach old-fashioned.
No leverage? No perpetual futures? No complicated stack of securities designed to magnify returns?
We see it differently.
The innovation should be the asset – not the number of ways investors can borrow against it.
BitIRA helps Americans establish self-directed IRAs that can hold supported cryptocurrencies. Customers decide which available assets to purchase, how much to purchase and when to buy or sell them, using money they’ve already saved.
BitIRA does not offer leverage in its Digital IRA accounts.
Our objective is not to turn retirement savings into a leveraged corporate bitcoin trade. It is to make it easier for long-term savers to add “alternative” digital assets to a diversified retirement savings strategy.
“Diversified,” see? Crypto should not have to be an all-or-nothing bet.
Strategy chose to concentrate almost its entire balance sheet in bitcoin and build an elaborate capital structure around that position. Individual savers can choose a different path – one that recognizes crypto’s potential without allowing a single asset to determine the fate of their entire retirement savings.
To learn more about holding supported cryptocurrencies in a self-directed IRA, request BitIRA’s free Essential Guide to Digital IRAs. Or, if you’ve done your due diligence and are ready to get started, you can open your Digital IRA with BitIRA online, right now, in less than 10 minutes.
