S&P downgrades Strategy's credit rating! $70 billion Bitcoin assets trigger "currency mismatch" crisis.

Standard & Poor's Global Ratings assigned a “B-” credit rating to Michael Saylor's Strategy, which is considered junk or speculative grade due to its large Bitcoin exposure, limited business diversification, and weak US dollar liquidity. S&P noted that Strategy faces currency mismatch issues, with most assets held in Bitcoin while its debt and preferred stock debt are denominated in US dollars.

The first Bitcoin financial company receives a junk rating

(Source: SPGlobal)

This rating makes Strategy the first Bitcoin financial company to receive an official credit rating from a large institution, marking a milestone in the history of the cryptocurrency industry. Strategy has transformed from a software company into a Bitcoin holding company, utilizing the proceeds from stock and bond issuances to purchase and hold Bitcoin as part of its financial strategy. This radical transformation has made it the largest corporate holder of Bitcoin globally, but it has also completely tied the company's fate to the price movements of Bitcoin.

S&P pointed out that Strategy's concentrated investment in Bitcoin is both its decisive advantage and its greatest weakness. The company's balance sheet is almost entirely exposed to digital assets, making it highly sensitive to market volatility and potential regulatory changes. Compared to traditional businesses, Strategy lacks diversified revenue sources and asset allocation, putting all its eggs in the Bitcoin basket.

The “B-” rating is classified as speculative grade in S&P's rating system, indicating that the company has significant credit risk. This rating is above “CCC” (considered to be very vulnerable) but far below “BBB-” (the investment grade threshold). For bond investors, a junk rating implies a higher risk of default, but it also corresponds to higher yields. The convertible bonds issued by Strategy typically offer a coupon of 0% to 2%, but the conversion premium and Bitcoin exposure are its real attractions.

The rating agency also pointed out the structural mismatch, as the debt and preferred stock debt of Strategy are denominated in US dollars, while most of its assets are held in Bitcoin. This currency mismatch poses a significant hazard in financial risk management. If the price of Bitcoin plummets, the value of Strategy's assets would shrink dramatically, but its dollar debt obligations would remain unchanged, potentially leading to insolvency.

700 billion Bitcoin assets against 8 billion USD in debt

As of June 2025, Strategy holds approximately $70 billion worth of Bitcoin, with a total convertible debt of around $8 billion, maturing in 2028 and beyond. This leverage ratio does not appear to be extreme on the surface, with debt only accounting for about 11.4% of assets, but Standard & Poor's is concerned about the volatility of the assets and the rigidity of the debt.

The extreme volatility of Bitcoin prices is the core risk faced by the Strategy. If the price of Bitcoin drops by 50%, the Strategy's $70 billion assets will shrink to $35 billion, while the $8 billion debt obligations remain unchanged. Although the company still maintains solvency, the asset-to-liability ratio will deteriorate sharply. If the price of Bitcoin drops by 80% to 90% (which has happened in cryptocurrency history), the Strategy will face a severe liquidity crisis.

S&P stated that Strategy's ability to manage debt maturities through capital market channels is a key factor in its stable rating outlook. The company has been refinancing its debt through convertible bonds and stock issuances, avoiding short-term maturing debt. The success of this refinancing strategy relies on two premises: Bitcoin prices remain high, and there is sustained demand for Strategy's stock and bonds in the capital markets. If either of these conditions deteriorates, Strategy's refinancing ability will be severely threatened.

Financial Structure of the Strategy:

Asset Side: Approximately 70 billion USD Bitcoin (based on market price)

Liabilities: Approximately 8 billion dollars in convertible debt (denominated in USD)

Maturity Time: 2028 and beyond, with lower short-term debt repayment pressure.

Leverage Ratio: Debt accounts for about 11.4% of assets, but the risk is amplified due to the high volatility of assets.

Preferred Stock Dividends: Over $640 million annually, putting pressure on USD Liquidity.

Standard & Poor's stated that the company's liquidity situation is strained due to over $640 million in preferred stock dividends each year, although these dividends are relatively small compared to its total Bitcoin holdings. The company can delay the payment of dividends, but doing so would have governance consequences, including granting preferred shareholders board representation.

Software business contributes minimal negative cash flow

The core software business of Strategy provides enterprise analysis tools, but its profitability remains thin, contributing minimally to operating cash flow. In the first half of 2025, the company's reported operating cash flow was negative $37 million, while its $8.1 billion pre-tax profit came almost entirely from the rise in Bitcoin prices. This extreme imbalance in financial structure indicates that Strategy has completely abandoned its traditional software business and is fully betting on Bitcoin strategies.

A negative operating cash flow of $37 million means that Strategy's daily business operations are actually losing money. If unrealized gains from Bitcoin price increases are excluded, the company's actual operating condition is a loss. This situation is unsustainable in normal businesses, but Strategy has created a self-reinforcing cycle by continuously issuing stocks and bonds to raise funds to purchase more Bitcoins.

The $8.1 billion pre-tax profit almost entirely comes from the rise in Bitcoin prices, highlighting the company's extreme dependence on Bitcoin prices. This revenue is unrealized paper profit that can only be converted to cash upon the actual sale of Bitcoin. However, Strategy's approach is to hold Bitcoin permanently and never sell, which means these paper profits may never be realized.

Nevertheless, analysts pointed out that the company's adjusted capital position remains “severely negative.” Because Standard & Poor's deducted Bitcoin assets from equity when calculating adjusted capital, Strategy's significant cryptocurrency risks have led to a structurally weak capital base. Due to the volatility and non-yielding nature of its held assets, the company's risk-adjusted capital ratio declined sharply in mid-2025.

Network Security Risks and Insufficient Custody Insurance

S&P has also listed cybersecurity as a significant risk. Strategy holds Bitcoin through multiple custodians, but the insurance coverage only accounts for a small portion of its total holdings. The institution stated that any loss of private keys or custody failure could severely damage the company's liquidity situation. This risk is extremely rare in traditional finance, but it is a real threat in the cryptocurrency space.

The custody of $70 billion in Bitcoin is an extremely complex challenge. Strategy employs security measures such as multi-signature, cold storage, and geographical distribution, but no system is 100% secure. The 2014 hack of Mt. Gox exchange resulted in the theft of 850,000 Bitcoins, which remains the largest security incident in cryptocurrency history. If Strategy encounters a security breach of a similar magnitude, the consequences would be catastrophic.

Insufficient insurance coverage is another key point of concern for S&P. Even if the Strategy purchases custodial insurance, the insured amount may only cover a single-digit percentage of the total holdings. This means that in the event of a significant security incident, most of the losses will be borne by the company and shareholders. This risk exposure must be taken into account in the credit rating.

Despite these shortcomings, S&P still appreciates Strategy's strict debt management and strong capital market pipeline. The company has been refinancing its debt through convertible bonds and stock issuances, avoiding short-term maturing debt. Its market capitalization is approximately $80 billion, reflecting investors' interest in investing in Bitcoin through traditional securities.

Looking ahead, S&P stated that it is unlikely to upgrade the rating of Strategy in the next 12 months, but an upgrade could be possible if Strategy improves its dollar liquidity and reduces reliance on convertible bonds. However, if the company loses market access or faces a significant drop in Bitcoin prices, it could face a downgrade.