TL;DR
- S&P Global Ratings assigns a ‘B-‘ (junk) credit rating to Strategy Inc.
- The downgrade is due to extreme concentration in Bitcoin and weak dollar liquidity.
- The agency warns of a “currency mismatch” risk between BTC assets and USD debts.
Strategy Inc., the rebranded company formerly known as MicroStrategy and led by Michael Saylor, received its first credit rating this Monday, and it was negative. S&P Global Ratings has set a precedent in evaluating cryptocurrency-focused companies. The agency assigned an issuer rating of ‘B-‘, placing the firm directly in “junk grade” or non-investment territory.
S&P’s decision is based on two critical risks: the company’s massive concentration in Bitcoin and its weak U.S. dollar liquidity. Although the outlook remains “stable,” the ‘B-‘ rating underscores Strategy Inc.’s high vulnerability to adverse market movements.
The S&P downgrades Strategy Inc. report highlights that the company’s balance sheet is intrinsically linked to Bitcoin’s price volatility. Traditional rating models struggle to treat such a volatile asset as stable collateral.
According to reports, Strategy Inc. holds a colossal reserve of approximately 640,808 BTC, valued at over $73 billion at recent prices. While this is a huge digital asset reserve, S&P notes that the company’s limited cash flow exposes it to significant risks under its credit rules.
The Currency Mismatch and Debt Pressure
A point of particular concern for S&P is the “currency mismatch.” Most of Strategy Inc.’s obligations, including billions in convertible securities and preferred shares maturing in the coming years, must be paid in U.S. dollars. However, the vast majority of its value resides in Bitcoin.
This structural imbalance could force the company to liquidate its BTC holdings to meet its dollar payments, a dangerous situation if it coincides with a drop in the crypto asset’s price.
Despite the S&P downgrades Strategy Inc. methodology resulting in a junk rating, the agency maintained a stable outlook. This is because, for now, Strategy Inc. still retains access to capital markets for financing. However, S&P issued a clear warning: an abrupt drop in Bitcoin’s price or a sudden tightening of financing channels could lead to a further downgrade in the rating.
