Strategy Unveils Bitcoin Credit Model to Quantify Debt Coverage

Michael Saylor's company, Strategy (Nasdaq: MSTR), has introduced a public tool called the Bitcoin Credit Model to show investors how well its Bitcoin holdings cover its debt. The move towards greater transparency is significant as it aims to address concerns about the risks on its balance sheet.

The model measures Strategy's obligations, including borrowed money and preferred stock, against its Bitcoin reserve. It assumes a 10% annual return on Bitcoin, which is a baseline assumption for the calculations. At a current Bitcoin price of around $64,000, the company's model values its reserve at $53.85 billion.

According to the model, only a 3.22% annual return would be needed to meet Strategy's obligations. However, this gap could narrow if Bitcoin falls or volatility increases. The disclosure comes during a challenging period for the company, which has been actively managing its balance sheet due to declining Bitcoin prices.

The company recently sold 1,690 Bitcoin at an average price of $64,262 and used the proceeds to buy back preferred stock. This move followed a net loss of $8.22 billion in the second quarter, largely driven by an unrealized loss on its Bitcoin holdings.