The Risk of Leveraged Bitcoin Companies

Short answer: A company that buys bitcoin with debt or preferred stock amplifies every price move for its shareholders. If claims worth a third of the bitcoin's value sit ahead of the stock, a 50 % fall in bitcoin becomes a 75 % loss for the stock. It only becomes truly dangerous, though, when someone can force the company to sell: a lender holding bitcoin as collateral, a bond that comes due, or a dividend there is no money left to pay.

How treasury companies work in general is explained in Bitcoin treasury companies explained. This article is only about debt and preferred stock: how to calculate the leverage, which kind of debt really puts a company in trouble, and what 2022 showed.

What "leveraged" means here

"Leveraged" means geared. A leveraged bitcoin company also buys bitcoin with borrowed money or with preferred stock. These investors have a fixed claim that ranks ahead of the common shareholders. The shareholders own only what is left after that. What this queue looks like at the largest company is shown step by step in Strategy's capital structure explained.

So the key figure for leverage is simple: What percentage of the bitcoin's value is already spoken for before the shareholder's turn comes? Here we call this the claims ratio.

The leverage math: what −50 % bitcoin does to equity

Take a company with 1’000 BTC and no other business. At $70’000 per bitcoin, the holdings are worth $70 million. Now we change only one thing: how much of it belongs to creditors and preferred shareholders.

Leverage does not grow evenly: going from 0 to 20 % claims adds 12.5 percentage points of loss, going from 33 to 50 % adds 25. And the claims ratio is also the price drop at which nothing is left for shareholders.

For comparison: at Strategy, claims of $19.85 billion rank ahead of the stock, against bitcoin holdings worth $60.25 billion (as of Nov 13, 2026). That is a claims ratio of about 33 %, almost exactly the middle row of the table. The dollar reserve is not included.

The share price often falls even further

The share price can fall further than equity, because in a bear market the premium the market pays for the stock also disappears. If the stock trades at twice its net bitcoin before and only at one times after, the price halves a second time. Then −75 % becomes −87.5 %. What this premium measures is explained in mNAV explained.

This chart shows how deep bitcoin fell in every bear market. From the high on Nov 8, 2021 ($67’525) to the low on Nov 21, 2022 ($15’784) it fell 77 %; from the high on Oct 6, 2025 ($124’673) to Jun 30, 2026 ($58’628) it fell 53 %. A company that only survives a drop of half is not prepared for a normal bitcoin cycle.

Secured loan or convertible bond: who can force a sale?

A price drop alone does not force any company to sell. Whether it turns into a sale at the bottom depends on the kind of debt.

A loan with bitcoin as collateral (a margin loan) has a limit on its loan-to-value (LTV). When the price falls, the LTV rises. Above an agreed threshold, the lender demands more collateral or a partial repayment. If the company can deliver neither, the lender sells the bitcoin itself. That happens exactly when the price is low. It works the same way for private individuals, as described in Bitcoin-backed loans: borrow instead of selling.

An unsecured convertible bond is a claim against the company as a whole, not against specific coins. Before maturity, the bondholder can demand nothing except the agreed interest, which at bitcoin companies is often only 0 to just over 2 %. A price drop triggers nothing.

There is a second risk: the lender itself. If the pledged bitcoin sit with the lender and it goes bankrupt, they are stuck in the insolvency proceedings. In 2022 several large crypto lenders went bankrupt, among them Celsius and BlockFi.

Companies other than Strategy do use such loans: Metaplanet has a credit facility of up to $500 million with bitcoin as collateral, The Smarter Web Company has a loan from Coinbase, and Trump Media has pledged part of its bitcoin for bonds and an options strategy (as of November 2026). Such loans are more common at small companies, because they find it harder to issue unsecured bonds. More on this in Small bitcoin treasury companies: opportunities and risks.

The refinancing wall

A convertible bond is cheap in a boom, because buyers hope to convert it into shares. If the stock rises above the conversion price, the debt becomes equity and disappears. If the stock is below it at maturity, nobody wants to convert. Then the company must repay the full amount in cash.

Many bonds also have a put date: a day before maturity on which bondholders may demand their money back. It works like an earlier maturity.

A refinancing wall forms when many of these dates fall in the same years. That is no coincidence: bonds from the same boom years also run out together. If the date falls in a bear market, three paths remain: a new bond on worse terms, new shares with heavy dilution, or selling bitcoin.

So always check what comes due or can be put back in the next two to three years, and compare that with the cash reserve. At Strategy, the convertible bonds mature between 2028 and 2032. One bond of $1.01 billion was already shown on the balance sheet as due within one year as of Sep 30, 2026; against it stands a dollar reserve of $4.79 billion (as of Nov 1, 2026).

mNAV below 1: when the engine runs in reverse

As long as the stock costs more than the bitcoin behind it, the company comfortably pays interest, dividends and maturing bonds with new shares. If the mNAV falls below 1, every new share lowers the bitcoin per share. The company loses its cheapest source of money exactly when debt and dividends become more expensive in bitcoin terms. This can turn into a spiral:

1. Bitcoin falls, and the stock falls more because of the leverage.
2. The premium shrinks or turns into a discount.
3. New shares no longer pay off, so money for interest and dividends runs short.
4. The company sells bitcoin. The market reads this as weakness, and the discount grows.

In 2026 this was not a thought experiment. Many treasury stocks traded below an mNAV of 1. Metaplanet bought back its own shares in October instead of issuing new ones. Strategy sold 6’947 BTC in the second and third quarters, partly to pay dividends.

Dividends: a burden that grows in bitcoin

Preferred stock has no maturity date, but costs a dividend every year that is fixed in dollars (or euros, pounds, yen). If the company has no business that earns enough, the money comes from new securities, from a reserve or from selling bitcoin.

The difference from a bond: a suspended dividend is not a default. The company can stop it without going bankrupt. For common shareholders that is a safety valve, for preferred shareholders a risk. What happens then depending on the security, cumulative or not, is explained in The risks of bitcoin preferred stocks. Strategy's total annual burden of about $1.51 billion, and how it grows in bitcoin, is in Strategy's capital structure.

What 2022 showed

2022 was the first bear market in which many listed companies held large bitcoin holdings and debt at the same time. By November, bitcoin had fallen 77 % from its high. The difference between companies that made it through and those that sold at the bottom lay less in the size of their debt than in its kind.

Core Scientific, then one of the largest listed miners in the US, sold 7’202 BTC in June 2022 at about $23’000 per bitcoin, most of its holdings. According to the company, the money went into mining machines, data centres and debt repayments. It had financed its machines with loans whose instalments were due regardless of the bitcoin price. On Dec 21, 2022 it filed for Chapter 11 bankruptcy protection and only emerged in January 2024.

MicroStrategy, now Strategy, had taken out a $205 million loan from Silvergate Bank through a subsidiary in March 2022, with bitcoin as collateral. The LTV had to stay below 50 %. The loan started at a quarter of the collateral's value, and the company had enough unpledged bitcoin to top up if needed. It came through without a forced sale. In March 2023, shortly after Silvergate had announced its wind-down, it repaid the loan early. Today Strategy says none of its bitcoin is pledged.

Three lessons follow:

1. Ongoing payment obligations without ongoing income are the core of the risk. For the miners these were loans for machines and power; for treasury companies they are interest and dividends.
2. Collateral turns a price drop into a sale. Whoever has enough free holdings to top up survives it. Whoever has pledged everything does not.
3. Time is the best protection. Companies with distant maturities and reserves could wait for the price to recover. In March 2024 bitcoin was back above its old high.

Checklist: how to assess a leveraged bitcoin company

You will find these figures in quarterly reports, investor presentations and on many company websites:

• Claims ratio: debt plus preferred stock at par, divided by the value of the bitcoin. Below 20 % the leverage is moderate; above 50 % a normal bear market is enough to wipe out the shareholders.
• Pledged bitcoin: How many coins serve as collateral, at what LTV does a margin call come, and at what price is that limit reached?
• Maturities and put dates: What comes due in the next three years, and how far is the stock below the conversion price?
• Annual burden: interest plus dividends, converted into bitcoin, and how many months the cash reserve covers it.
• Operating business: Does the company earn enough outside bitcoin to cover its own costs?
• Net mNAV: Can the company sell new shares today without diluting its shareholders?

If a company does not provide these figures, that is an answer in itself.