According to Fortune, Strategy (formerly MicroStrategy) reported net income of $2.8 billion, or $8.42 per share, in the third quarter, reversing a $340 million loss from the same period last year. The Tysons Corner, Virginia-based company adopted new accounting standards in January that require including the fair value of its Bitcoin holdings in earnings, creating multibillion-dollar profit swings in recent quarters. Despite Bitcoin reaching record highs and the company’s enterprise software revenue growing 11% to $128.7 million, Strategy shares have fallen approximately 45% since their peak last November, eroding the premium the stock historically held over its Bitcoin assets. The company also revealed it’s “actively laying the groundwork for credit securities in international jurisdictions” while facing tepid demand for its preferred stock offerings. This dramatic turnaround raises fundamental questions about the sustainability of Saylor’s Bitcoin-focused strategy.
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The Accounting Revolution Behind the Numbers
The $2.8 billion profit figure represents a watershed moment in corporate accounting for cryptocurrency holdings. When MicroStrategy adopted fair value accounting in January, it fundamentally changed how companies can report digital asset holdings on their balance sheets. Previously, Bitcoin was treated as an intangible asset subject to impairment losses but no upward revisions. The new approach creates massive volatility in quarterly earnings that reflects Bitcoin’s price movements more transparently. This accounting shift matters because it gives investors a clearer picture of the company’s actual crypto exposure, but it also creates headline numbers that can be misleading without context. The profit represents paper gains rather than realized cash flow, which explains why investors remain skeptical despite the impressive headline figure.
The Vanishing Premium Problem
Strategy’s most significant challenge isn’t Bitcoin’s price volatility—it’s the erosion of the company’s market premium. For years, investors paid a substantial premium for Strategy shares over the underlying value of its Bitcoin holdings, essentially betting on Michael Saylor’s ability to execute his vision better than they could buy Bitcoin directly. That premium, measured as mNAV (market value to net asset value), has collapsed from over 2x to approximately 1.3x. This compression suggests investors are losing confidence in Saylor’s ability to generate alpha through his acquisition strategy. The premium erosion becomes particularly problematic when the company needs to raise capital through equity offerings, as lower premiums mean less Bitcoin can be purchased per share sold.
The Coming Financing Crunch
Strategy’s preferred stock offerings have drawn “tepid demand,” according to Fortune’s reporting, creating a critical financing challenge. The company’s entire growth model depends on continuously raising capital to buy more Bitcoin, creating a virtuous cycle of increasing assets and potentially higher premiums. However, with preferred stock struggling and common equity sales becoming less efficient due to the shrinking premium, Strategy faces a potential capital crunch. The company’s pledge not to issue common shares below 2.5x net asset value appears increasingly difficult to maintain, creating a strategic dilemma. If Strategy can’t raise capital efficiently, it risks becoming a static Bitcoin holding vehicle rather than the dynamic accumulation machine Saylor envisioned.
The International Jurisdiction Gambit
The mention of “credit securities in international jurisdictions” suggests Strategy is exploring regulatory arbitrage to overcome its domestic financing challenges. Different countries have varying regulations around cryptocurrency-backed securities, and some jurisdictions may offer more favorable treatment for Strategy’s unique business model. This international expansion could provide access to capital markets that view Bitcoin more favorably or have less restrictive securities regulations. However, operating across multiple legal systems introduces complex regulatory compliance challenges and could dilute the company’s strategic focus. The success of this international strategy will depend on whether foreign investors see more value in Strategy’s approach than their domestic counterparts.
The Forgotten Software Business
Buried beneath the Bitcoin headlines is Strategy’s surprisingly resilient enterprise software business, which grew 11% to $128.7 million and beat analyst expectations. This legacy operation represents both an opportunity and a distraction. On one hand, it provides stable cash flow that could help fund Bitcoin purchases without diluting shareholders. On the other, it ties up management attention and capital that could be deployed toward the company’s primary Bitcoin accumulation strategy. The software business’s continued existence raises questions about whether Strategy should fully commit to being a Bitcoin-focused company or maintain its hybrid identity. As investor patience with the Bitcoin strategy wears thin, the software division might become increasingly important to maintaining the company’s valuation floor.
A Company at a Strategic Crossroads
Strategy stands at a critical inflection point. The accounting-driven profits mask underlying challenges in financing, premium erosion, and strategic clarity. Michael Saylor’s pioneering approach to corporate Bitcoin adoption now faces its toughest test since the 2020 pivot. The company must either find innovative financing solutions that restore investor confidence or risk becoming just another Bitcoin ETF-like vehicle without the premium that justified its existence. The next six months will determine whether Strategy can evolve beyond being a simple Bitcoin accumulator into a sustainable financial innovation company, or if it will become a cautionary tale about the limits of corporate cryptocurrency strategies.
