MicroStrategy may become the next LUNA! Polygon CEO warns that 650,000 BTC is trapped in a death spiral.

Polygon CEO Sandeep Nailwal warned that MicroStrategy could become the “LUNA of this cycle,” as the fall of MSTR stock is faster than Bitcoin. MicroStrategy's stock price fell nearly 10% to $159.77, down an astonishing 66% from the July high of around $473. The 650,000 Bitcoins held by MicroStrategy account for 3.1% of the total, facing the risk of a “death spiral.”

MicroStrategy stock price crashes 66%, far exceeding Bitcoin's fall

(Source: Trading View)

The analysis of the current price trend reveals a clear divergence, confirming concerns about MicroStrategy's precarious financial situation. On December 1, Bitcoin fell by 6% to around $84,856, continuing the decline that started from a previous high near $108,000. Although painful, a 22% drop from the peak is still within the normal volatility range for leading cryptocurrencies. Bitcoin has experienced 20-30% pullbacks multiple times in its history, and this volatility is the norm in the cryptocurrency market.

However, the stock price trend of MicroStrategy presents a more concerning picture. The stock price fell nearly 10% in a single day, to $159.77, down an astonishing 66% from the high of about $473 in July. This significant disadvantage relative to Bitcoin indicates that the market is pricing in major corporate and structural risks beyond simple cryptocurrency risks.

This kind of divergence phenomenon is extremely rare and dangerous. Theoretically, MicroStrategy, as a pure leverage tool for Bitcoin, should maintain a relatively fixed proportional relationship with the price of Bitcoin. If Bitcoin falls by 22%, MicroStrategy's stock price may fall by 30-40% (considering the leverage effect), but it should not fall by 66%. This excessive decline indicates that the market is losing confidence in MicroStrategy's business model itself.

The technical aspect is severely damaged. The weekly chart of the stock shows that the price has formed a double top pattern around 445 dollars, with the key support level of 230 dollars having been broken. The current price trend is clearly below the 50-week and 100-week exponential moving averages, which is typically associated with ongoing bearish control. The double top pattern is one of the most reliable bearish reversal patterns, and after breaking below the 230 dollars support, the next support level may be at 150 dollars or even lower.

mNAV falls to 0.95 approaching the death red line

MicroStrategy's management has explicitly defined the conditions under which the company will sell its Bitcoin holdings for the first time in its Bitcoin reserve history. CEO Phong Le outlined two specific trigger conditions in a recent podcast: the stock trading price must be below its adjusted net asset value (mNAV), and the company must be unable to access the capital markets for equity or debt financing.

The adjusted net asset value (mNAV) compares the company's market value with the value of its Bitcoin holdings. When this ratio falls below 1, the company's market value will be less than the value of the Bitcoin it holds, which clearly indicates that investors assign a negative value to the company's structure itself. As of late November, this metric hovers around 0.95 times, very close to the potential action threshold of 0.9 times identified by the management internally, which is in the danger zone.

If mNAV continues to fall to 0.9 times, and the credit market still closes to the company, then selling Bitcoin not only becomes possible but mathematically very likely. This threshold is not arbitrary; it represents the limit that the company's financial structure can withstand. When the market value falls below 10% of the Bitcoin holding value, it means that the market's negative evaluation of the company has reached an extent that is hard to ignore.

mNAV death cross three-phase deterioration

Current Stage (mNAV 0.95): Market value slightly below BTC holding value, financing difficulty has increased but can still be maintained.

Warning Stage (mNAV 0.9): Reaching the action threshold set by the management, may be forced to consider selling coins.

Death Stage (mNAV <0.8): The market has completely lost confidence, financing channels are closed, and forced liquidation is inevitable.

MicroStrategy's aggressive Bitcoin accumulation strategy relies on a complex capital structure that has become increasingly unstable. The company has issued multiple series of perpetual preferred stock, offering varying dividends each year. These instruments are designed to fund continuous purchases of Bitcoin without immediately diluting the equity of common shareholders. This mechanism played a significant role during Bitcoin's rise, but has entered a dangerous zone in the current downtrend. As stock prices experience a big dump, investors' interest in new stock offerings has vanished, severely impairing the company's ability to raise new capital.

Systematic Risk Assessment of 650,000 BTC Dump

The impact of MicroStrategy's liquidation could far exceed the balance sheet of a single company. Controlling over 650,000 Bitcoins, which accounts for more than 3% of the total supply, any forced sell-off could become one of the largest single supply shocks in cryptocurrency history. For context, the Mt. Gox bankruptcy involved approximately 850,000 Bitcoins, but these Bitcoins were distributed gradually over several years rather than being sold off immediately.

A large-scale sell-off is likely to trigger multi-layered market volatility. The initial selling pressure will drive prices down, which may subsequently lead to margin calls and forced liquidations of leveraged positions. This could create a feedback loop, where the price decline forces more people to sell, further depressing valuations and forming a typical death spiral dynamic. The psychological impact on market sentiment could also be destructive, as MicroStrategy has become a symbol of institutional adoption of Bitcoin and long-term belief.

The Similarities and Fundamental Differences of the LUNA Crash

When the mechanism connecting UST and LUNA tokens collapsed, the algorithmic stablecoin model of LUNA failed, leading to a vicious inflation and a complete loss of value. Although the structure of MicroStrategy is fundamentally different, they share the commonality of relying on market confidence and capital acquisition. Both models perform well in a rising market but have inherent vulnerabilities in a falling market.

The key similarity is that a price fall can create a self-reinforcing vicious cycle, leading to a decrease in the sustainability of potential mechanisms, which in turn further pushes down prices. The death spiral of LUNA is: UST decouples → large-scale redemptions → minting a massive amount of LUNA → LUNA price collapses → UST further decouples. The potential death spiral of MicroStrategy is: BTC falls → stock price big dump → mNAV turns negative → forced to sell BTC → BTC further falls.

However, the two also have essential differences. The model of LUNA relies on algorithms, and when the algorithm fails, the entire system collapses instantly. MicroStrategy holds real Bitcoin assets, and even if it is forced to sell, Bitcoin itself still has value and will not go to zero. In addition, MicroStrategy has established a reserve of 1.44 billion US dollars, providing a liquidity buffer for 21 months, which is a risk management mechanism that LUNA lacks.

The next few weeks will be a key test for the MicroStrategy model and the recent trend of Bitcoin. The price movement of Bitcoin is crucial. If the price can continue to rise above $95,000, it will help improve MicroStrategy's price-to-book ratio and potentially reopen access to the capital markets. Conversely, if the stock price further falls below $80,000, it will exacerbate pressure on various aspects of the company's balance sheet.