Strategy reveals its resistance threshold to long-term decline in Bitcoin

Strategy releases new indicator to measure Bitcoin's ability to withstand declines

Strategy has released a new indicator to measure its ability to withstand a sustained market decline. Instead of setting a floor price, the company proposed an annualized rate of return to assess the soundness of its financial structure over years. The new tool is based on its reserves, debt and financial commitments. In this context, Bitcoin remains at the heart of a strategic model that aims to better explain why its financial coverage remains adequate even if the market continues to decline.

Brief overview

·Strategy estimates that its model can withstand an annualized decline of 11.34% in Bitcoin before reaching a critical threshold.

·The company calculates based on its holdings of 843,775 bitcoins, net debt and preferred shares.

·The second threshold is set at 10.79%, which corresponds to the rate of return required to cover effective financing costs.

·The lower limit on Bitcoin's annualized yield will not trigger liquidation, forced sale of Bitcoin, or automatic restructuring.

·According to Michael Siler, this new indicator is part of a new analytical framework for bitcoin-related capital markets.

Bitcoin: Strategies set resistance thresholds based on annualized rates of return

Strategy's new metrics are based on different principles than traditional analysis. Rather than setting a precise price level for Bitcoin, the company calculates a constant annualized rate of return that maintains 1.0 times financial coverage over the entire life of its credit structure.

As of July 24, the lower bound for Bitcoin's annualized yield was-11.34%, while the weighted average term of the credit structure was 5.79 years. According to the company, this figure represents the minimum annualized rate of return that Bitcoin can continue to record without causing model coverage to fall below the 1.0 times threshold.

This model considers multiple financial elements simultaneously. It relies mainly on current Bitcoin reserves, net debt and preferred stock, as well as annual expenses related to interest and dividends. However, this indicator is neither a market floor price nor a liquidation threshold, nor a mechanism to automatically trigger restructuring.

However, the glossary released by the company clearly states that continued below this threshold may cause Strategy firms to consider restructuring some of their debt. This explanation describes a theoretical possibility contained in the model and is not a planned decision.

Reserves and financial obligations determination model balance

To establish its indicators, Strategy based on its financial position as of July 20. The company not only looks at the amount of Bitcoin it holds, but also considers its debt, cash, preferred stock, and the interest and dividends it must pay annually.

In calculations, the company reported debt of $6.754 billion and cash of $3.225 billion. After deducting cash, net debt reached $3.529 billion. Strategy then added $15.464 billion in preferred stock, bringing the total commitments retained in its model to $18.993 billion.

Instead, these commitments are compared to the value of Bitcoin reserves held by the company. The key data at the time of calculation are as follows:

·Strategy holds 843,775 bitcoins.

·The reference price for each Bitcoin is US$63,769.

·The total value of reserves is US$53.807 billion.

·The annual interest and dividends payable is US$1.763 billion.

The principle is simple: as long as the reserve is worth enough to cover all financial commitments retained in the model, the indicator remains above the threshold set by the strategy firm. Conversely, if the value of Bitcoin continues to fall or financial obligations increase, the threshold will automatically evolve as new data is released by the company.

Three scenarios to evaluate the company's financial strength

In addition to the lower limit on Bitcoin's annualized rate of return, the company also proposed a second indicator. This indicator corresponds to the break-even financing threshold, showing an annualized rate of return of 10.79%. According to the company's definition, this level represents the effective cost of credit, beyond which a positive interest margin occurs.

These two indicators allow three different situations to be distinguished based on the development of Bitcoin:

·Above 10.79%: The model yield exceeds the financing cost, resulting in a positive spread.

·Between-11.34% and 10.79%: Coverage remains greater than or equal to 1.0 times throughout the duration of the model, even if the yield is lower than the cost of credit.

·Below-11.34%: Coverage dropped below 1.0 times, and Strategy estimates that it may consider restructuring at that time.

This distribution shows that the model clearly distinguishes between financial profitability and the ability to maintain adequate coverage. As a result, a long-term decline in Bitcoin can generate yields below financing costs while keeping coverage above the retention threshold.

The gap between the two indicators also illustrates the buffer space companies have before the limits defined in their own analytical framework.

Although there is a theoretical threshold, there is no automatic mechanism in place

Based on published information, exceeding the threshold of-11.34% will not trigger any immediate consequences. The model does not provide for forced sales of reserves, automatic refinancing or contractual defaults related to credit terms.

glossary does not further elaborate on what form potential reorganization may take. It does not set a timetable or precise criteria to guide such decisions. This indicator is mainly used as an internal analysis tool based on certain financial assumptions.

The company also highlighted several important limitations. Preferred shares are calculated based on their nominal value, while certain securities may carry liquidation preferences or higher redemption amounts. In addition, the model did not include a number of elements that could affect results, including unpaid dividends, premiums, transaction fees, taxes, or the potential impact of a large bitcoin sale on the market.

Finally, Strategy Company reminds that its evaluation framework is not a traditional credit rating. It measures neither a company's actual liquidity nor its overall financial performance. It also did not consider the possibility of cross-defaults that could trigger early maturities of certain debts. Michael Siler explained on Platform X that these new indicators will help create a "new financial language" for bitcoin-related capital markets.

With this lower bound on Bitcoin's annualized yield, the company has added a measure designed to measure in real time the theoretical resilience of its financial model in the event of a long-term market downturn. This threshold does not predict the trend of Bitcoin, but provides a reference framework for evaluating the financial soundness of a strategic company based on assumptions retained by the company.