Strategy: The 14.5 billion yuan unrealized loss in Bitcoin behind the scenes: the dual challenge of high-yield preferred shares and dilution financing

In the first quarter of 2026, Strategy (formerly MicroStrategy) filed an 8-K document with the U.S. Securities and Exchange Commission revealing that the company had an unrealized loss of approximately $14.46 billion in digital assets, with the widely cited figure around $14.5 billion. As of March 31, the book value of the company’s digital assets was $51.65 billion, with Bitcoin holdings costing more than their fair value. This accounting figure vividly illustrates the financial volatility risk caused by concentrated asset allocation and has also prompted the market to systematically reassess its financing structure and risk boundaries.

The specific scale and background of the unrealized loss

The unrealized loss of $14.46 billion, in absolute terms, exceeds the total market capitalization of most listed companies. The direct cause of this loss is that Bitcoin’s price fell more than 20% in the first quarter of 2026, marking the largest first-quarter decline since 2018. By the end of the quarter, Strategy held approximately 766k BTC, with a total investment of about $58.02 billion and an average holding cost of roughly $75,644 per BTC. Based on the quarter-end price, there is a significant gap between the market value of the holdings and their cost basis. In accounting terms, the company also reported about $2.42 billion in deferred tax assets but simultaneously recognized an equal amount of valuation allowances, indicating management’s assessment that the likelihood of realizing these tax benefits in the future is limited.

What is the core change in the financing model?

Strategy’s continued buying is not driven by cash flow from software business but relies on financial engineering through capital market financing. From 2024 to early 2025, the company mainly financed through issuing low-interest or zero-interest convertible bonds, when MSTR’s stock price was significantly premiumed over its Bitcoin net asset value, enabling an efficient “financing—buying—holding” cycle. However, entering 2026, as the premium narrowed or disappeared, the financing model underwent a structural shift. The company began heavily relying on perpetual preferred stock (STRC) financing, with an annual dividend yield as high as 11.5%, supplemented by ATM offerings of common stock. This shift means the cost of financing has risen sharply—from zero-interest convertible bonds to double-digit preferred stock dividends—imposing higher financial costs to maintain the buying pace.

Why hasn’t the paper unrealized loss triggered a liquidation mechanism?

One of the most common misconceptions about Strategy’s risk is equating its financing structure with collateralized borrowing. In reality, its core financing tool, STRC, is perpetual preferred stock, which is equity financing rather than a collateralized loan. It has no maturity date, and the company does not need to repay principal—only to pay dividends as agreed. This means that a decline in Bitcoin’s price will not trigger margin calls or forced liquidations. The company has publicly stated that even if Bitcoin drops to $8,000, its assets are still sufficient to cover all debts. Structurally, there is currently no mechanism that would force the liquidation of Bitcoin due to price declines. However, safety does not mean risk-free—the main pressure comes from cash flow: the 11.5% annual dividend rate entails ongoing cash outflows. If Bitcoin remains sideways or stays below cost for a long time, the high dividend payments will continue to deplete the company’s cash reserves, creating long-term financial wear.

Where are the boundaries of leverage sustainability?

Strategy’s financial sustainability depends on a core inequality: whether Bitcoin’s long-term appreciation can outpace financing costs. During the era of zero-interest convertible bonds, this condition was almost automatically satisfied; but with an 11.5% preferred dividend rate, the requirement has been significantly raised. The company currently holds about $2.25 billion in cash reserves, enough to cover over two years of interest and dividend payments. However, this coverage window is limited. If Bitcoin’s price remains below the cost basis for an extended period, cash reserves will irreversibly erode financial buffers. Additionally, the company plans to fully convert its convertible bonds into equity within the next 3 to 6 years to reduce debt on its balance sheet, at the cost of diluting existing shareholders. Rising financing costs are squeezing operational flexibility, and although the company still has about $27 billion in remaining issuance capacity for MSTR stock, the financing pace has shifted from continuous large-scale buying to intermittent, higher-cost modes.

What does a 3.65% holding in a single entity imply?

As of April 5, Strategy held 766,970 BTC, accounting for approximately 3.65% of the total circulating supply of Bitcoin, making it the largest corporate holder globally. Based on the current rate of accumulation, it could surpass the estimated holdings of Satoshi Nakamoto in the next year or two, becoming the largest single Bitcoin holder worldwide. This scale has significant structural implications. On one hand, Strategy’s decision-making—whether to continue buying, pause, or eventually liquidate—will disproportionately influence price discovery mechanisms. On the other hand, market expectations will form a self-reinforcing feedback loop around its actions: when market participants interpret Strategy’s buying as a bottom signal, the entity effectively gains asymmetric market influence. Meanwhile, holding over 3.6% of circulating supply also creates exit dilemmas—large-scale liquidation could conflict with market stability, as there is an inherent contradiction between exiting and causing a price collapse.

Why do corporate treasury and ETF funds diverge?

In the first quarter of 2026, a clear watershed appeared in the Bitcoin market. Strategy completed its second-largest quarterly increase, buying 89,599 BTC; meanwhile, U.S. spot Bitcoin ETFs experienced net outflows of about $500 million. These two types of institutional funds moved in opposite directions within the same market and time window. The core reason for this divergence lies in the nature of their holdings. Strategy treats Bitcoin as corporate assets, with holding periods measured in years; quarterly book losses do not trigger selling decisions. In contrast, ETF funds are inherently more trading-oriented and focused on liquidity management. When arbitrage profits diminish or macro risks rise, their withdrawal speed accelerates. In Q1 2026, institutional and corporate investors net increased holdings by 69,000 BTC, while retail investors net sold 62,000 BTC, reflecting a typical structural shift from “institutional accumulation” to “retail exit.”

The profound impact of leverage models on the crypto market structure

Strategy’s leveraged holding pattern is reshaping the crypto market dynamics from multiple dimensions. First, its continuous buying has become a significant support at the lower end of the market, forming visible bid support during price declines. Second, the STRC preferred stock provides a compliant Bitcoin yield instrument for traditional institutional capital, bringing some incremental funds into the crypto ecosystem. Third, the increasing concentration of holdings alters the market game—Strategy is no longer just a participant but an influential variable affecting price expectations. However, this influence also introduces asymmetric risk: when financing channels are smooth and buying continues, expectations reinforce themselves; if financing slows or expectations reverse, the effects are similarly amplified. The contradiction between rising financing costs and increasing concentration constitutes the core structural tension of the current model.

Safety margins under current price ranges

According to Gate data, as of April 13, Bitcoin’s real-time price was about $71,100, having briefly touched $65,000 in early April, then rebounded above $73,000. Recently, bulls and bears have been repeatedly battling within the $71,000–$72,000 range. Strategy’s average cost of $75,644 remains above the current market price, so unrealized losses still exist. However, from a financing safety perspective, STRC preferred stock has no forced liquidation mechanism and is unlikely to trigger systemic risk due to short-term price fluctuations. The real stress test lies in cash flow sustainability: if Bitcoin’s price remains below cost for a long time, the 11.5% annual dividend will continue to deplete cash reserves, shrinking the financial buffer over time. Additionally, the approaching redemption points of some convertible bonds in September 2027 and 2028 will also be critical time-sensitive nodes.

Summary

The unrealized loss of approximately $14.5 billion in Strategy’s Q1 book is fundamentally the result of concentrated asset allocation combined with high-cost leverage financing. Its financing model has shifted from zero-interest convertible bonds to 11.5% preferred stock, significantly increasing financing costs. Structurally, the equity financing via STRC avoids forced liquidation risks triggered by price declines, but cash flow pressures are accumulating. With a holding of 76,600 BTC, about 3.65% of Bitcoin’s circulating supply, its influence on market pricing is growing, while also raising exit and concentration risks. Currently, Bitcoin’s price is below the cost basis, and the sustainability of the financing model will depend on whether Bitcoin’s long-term appreciation can cover the rising capital costs.

FAQ

Q1: What is the specific amount of Strategy’s unrealized loss in the first quarter?

A: The company confirmed an unrealized loss of $14.46 billion in digital assets, with the market often citing about $14.5 billion.

Q2: How many Bitcoins does Strategy currently hold, and what is the average cost?

A: As of April 5, 2026, Strategy holds 766,970 BTC, with a total cost of about $58.02 billion, averaging approximately $75,644 per BTC, representing about 3.65% of the total circulating supply.

Q3: Will the unrealized loss force Strategy to sell Bitcoin?

A: From a financing structure perspective, STRC perpetual preferred stock is equity financing without a forced liquidation threshold, so price declines will not trigger forced sales. The company has about $2.25 billion in cash reserves to cover over two years of dividend payments, so there is no systemic pressure to sell in the short term.

Q4: What is the dividend rate of STRC preferred stock? What does it mean for Strategy’s finances?

A: The annual dividend rate is approximately 11.5%, significantly higher than early convertible bonds’ zero or low interest. This means the company must bear substantial fixed dividend expenses annually, and if Bitcoin remains sideways or declines long-term, cash reserves will be continuously consumed, squeezing financial flexibility.

Q5: What impact does Strategy’s leveraged position have on the market?

A: Its ongoing buying forms an important support at the lower end of the market, but high concentration also introduces systemic risks. The 766k BTC scale could lead to liquidity issues when exiting, and its behavior influences market expectations, creating a self-reinforcing feedback loop.