Strategy Shares Face Intensifying Sell-Off as Bitcoin Leverage Backfires

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The downturn for Strategy shares accelerated sharply on Thursday, with the stock plunging 10% to close near $143. This price level represents a staggering 66% decline from its all-time peak. What initially appeared as a sophisticated bet on Bitcoin is increasingly revealing itself as a high-stakes financial gamble with severe consequences.

All eyes are now on February 5, 2026, when Strategy is scheduled to release its complete fourth-quarter financial results. The company's equity remains tightly tethered to Bitcoin's price movements, but its leveraged structure amplifies volatility in both directions. While some market analysts maintain an average price target of $475, achieving this would necessitate a substantial and sustained recovery in the cryptocurrency market.

The Core Problem: Amplified Bitcoin Exposure

The immediate catalyst for the sell-off is clear. Bitcoin has retreated from its October high above $126,000 to approximately $82,000. However, Strategy's predicament is magnified because it does not merely hold Bitcoin. The company employs significant leverage through debt and equity issuance, turning every cryptocurrency fluctuation into a magnified event for its balance sheet.

Strategy's holdings now amount to roughly 712,647 BTC, valued at about $60 billion. This position equates to over 3.4% of the entire Bitcoin supply. The leverage's downside was starkly illustrated in Q4 2025, when the firm reported an unrealized loss of $17.44 billion, mirroring Bitcoin's 25% drop during that period.

A Striking Valuation Anomaly

A notable feature of the current situation is Strategy's market valuation. The company is now valued at approximately $46 billion, which sits below the stated value of its Bitcoin treasury. This places its price-to-book ratio at 0.7. This marks a dramatic shift from earlier years, when investors were willing to pay premiums of 200% to 300%, attracted by Strategy's unique status as a leveraged Bitcoin investment vehicle. The 2024 introduction of Bitcoin spot ETFs effectively eliminated that exclusive advantage.

Despite the mounting paper losses, CEO Michael Saylor continues to double down. Between January 12 and 19, the company purchased an additional $2.13 billion worth of Bitcoin, funded through the issuance of new shares.

Structural Vulnerabilities Come to the Fore

Strategy's capital structure is showing signs of strain. The firm faces annual interest and dividend obligations totaling $689 million. In December 2025, management established a cash reserve of $2.19 billion, which it estimates is sufficient to cover these costs for about 21 months. The legacy software business, generating quarterly revenue of $128.69 million, falls far short of funding these liabilities without continual access to fresh capital.

The company also recently navigated a significant index-related risk. In early January, Strategy narrowly avoided removal from the MSCI Index. The index provider had contemplated excluding companies with more than 50% of their assets in digital currencies. Analysts at JPMorgan estimated that potential forced selling from index funds could have triggered outflows of up to $8.8 billion. MSCI ultimately postponed its decision but reserved the right for future review.