S&P Global Downgrades Strategy Inc. to 'Junk' Rating Over Heavy Bitcoin Exposure and Liquidity Risks

S&P Global Ratings has assigned a ‘junk’ credit rating to Strategy Inc., a Virginia-based company that shifted its focus from enterprise software manufacturing to Bitcoin (BTC) investment and management, as reported by Bloomberg on October 27. The rating agency identified excessive exposure to cryptocurrency, a narrow business model, weak risk-adjusted capitalization, and limited U.S. dollar liquidity as significant vulnerabilities undermining the firm’s financial stability.

Bitcoin-Focused Model Triggers Concerns in Initial ‘B-’ Rating

S&P Global analysts have issued an initial credit rating of ‘B-’ to Strategy Inc., citing the firm’s substantial Bitcoin concentration as a high-risk factor. According to the agency, Strategy Inc. currently holds approximately $74 billion in Bitcoin at fair market value, funded predominantly through debt and equity issuances. While the company has been commended for prudently managing its convertible debt, S&P expressed mounting concerns over liquidity risks tied to its considerable debt obligations.

The firm has issued close to $15 billion in convertible debt and preferred equity instruments, including $5 billion in out-of-the-money convertible bonds that will mature starting in 2028. Furthermore, the company is required to allocate more than $640 million annually toward preferred dividend payments, with a key payout scheduled for October 2025.

Liquidity Pressures and Market Risks Compound Vulnerabilities

S&P warned that Strategy Inc.’s liquidity challenges could be exacerbated during periods of Bitcoin price volatility, potentially forcing the company to sell off its cryptocurrency holdings under less favorable conditions or refinance its debt obligations. In such scenarios, the agency stated this could lead to financial events "tantamount to default."

Additionally, Strategy Inc. is grappling with critical currency mismatch risks. While the firm holds billions in Bitcoin, which is not denominated in U.S. dollars, its debt maturities, dividends, and interest payments are all required to be serviced in U.S. dollars. To mitigate these cash-flow mismatches, Strategy has been issuing common stock to raise funds for debt servicing and dividend payouts, heightening concerns about its sustainability during market downturns.

Conditions for Positive Credit Rating

Although S&P Global’s outlook remains cautious, it highlighted several pathways through which Strategy Inc. might improve its credit standing. Key strategies include reducing dependency on convertible debt instruments, increasing its U.S. dollar liquidity reserves, and demonstrating consistent access to capital markets, even in periods of Bitcoin price instability.

S&P described Bitcoin as a highly volatile asset class that lacks correlation to traditional financial instruments, amplifying Strategy Inc.’s exposure to market risk. The analysts emphasized that the company’s growing Bitcoin holdings would likely continue to stress its risk-adjusted capitalization and overall financial health in the foreseeable future.

Bitcoin Purchases Continue Amid Pressures

Despite the challenges outlined by S&P, Strategy Inc. has consistently expanded its Bitcoin portfolio. On October 28, the company revealed it had acquired an additional $43.4 million worth of Bitcoin over the course of the preceding week. As a result, its total holdings now stand at 640,808 BTC, representing a fair market value of approximately $73.7 billion.

The firm is scheduled to release its third-quarter financial results later this week, which could shed further light on its financial strategies in response to mounting pressure. Meanwhile, Strategy's stock rose by 2.3% on October 28, closing at $295.63 per share. Year-to-date, the stock has recorded modest gains of 2%; however, Bitcoin prices have surged 22% over the same period.

Notably, Strategy Inc. representatives declined Bloomberg’s requests to comment on S&P’s downgrade.

Conclusion

S&P Global Ratings’ assessment highlights the inherent risks of Strategy Inc.’s Bitcoin-centered business approach. While the firm has shown strategic efforts to manage debt obligations and expand its cryptocurrency portfolio, its narrow operational scope, liquidity constraints, and exposure to volatile Bitcoin market trends remain critical vulnerabilities. A credit upgrade might be possible if Strategy can strengthen its financial position by decreasing debt reliance, boosting liquidity, and demonstrating resilience amidst Bitcoin price changes. For now, however, the company's high dependence on cryptocurrency, paired with mounting financial obligations in U.S. dollars, leaves it firmly within the "junk" credit tier, underscoring its precarious financial outlook.