Strategy’s Bitcoin Lending Pivot Could Help Hedge Funds Short Its Premium

TLDR

• Strategy plans to lend its 650,000 BTC, raising risks for Bitcoin’s borrowing market.
• Lending Bitcoin could lower borrowing costs, benefiting hedge funds looking to short it.
• Strategy’s shift from passive holding to lending exposes it to counterparty risks.
• The firm faces pressure to find yield as its stock valuation compresses.

Strategy, the company formerly known as MicroStrategy, is considering a major shift in its business strategy. The firm, which holds the largest corporate Bitcoin reserve of 650,000 BTC, is exploring entering the crypto lending market. This move could change its role from a passive Bitcoin holder to an active player in the financial sector, looking to generate yield from its vast holdings.

On December 2, 2025, CEO Phong Le shared with Bloomberg that the company is in talks with banks about lending out its Bitcoin reserves. However, he noted that the company is still waiting for larger financial institutions to engage in the space before making any final decisions. He emphasized, “We’ve had a lot of constructive discussions” with potential partners. This shift in strategy, if executed, will expose Strategy to risks it had previously avoided.

The Paradox of Lending Bitcoin

Historically, Strategy’s approach to Bitcoin has been a simple one—hold the cryptocurrency without engaging in lending or other high-risk activities. However, the decision to lend out its 650,000 BTC introduces a complex paradox. The demand for borrowing Bitcoin primarily comes from hedge funds and market makers who want to short the asset, betting against Bitcoin’s price.

By lending Bitcoin, the Strategy could inadvertently lower the borrowing costs for these short-sellers. This would not only affect the company’s own Bitcoin reserves but also undermine the very asset it holds. This creates a situation where Strategy might be contributing to the market forces that could drive down its Bitcoin holdings’ value.

Counterparty Risk and Market Impact

Another significant concern is the introduction of counterparty risk. Lending Bitcoin involves borrowing agreements that expose the Strategy to the possibility of default or financial instability of lending partners. The crypto credit market has faced issues in the past, most notably in 2022, when platforms like BlockFi and Celsius collapsed due to mismanagement of risks and exposure to bad loans.

Le has assured that Strategy would only partner with top-tier financial institutions, but lending Bitcoin still brings about a shift in the firm’s risk profile. Once the Bitcoin leaves its vault, Strategy no longer holds the same level of control over the asset, transforming it from a simple owner to an unsecured creditor in the event of any default.

Pressure on Valuation and Yield Generation

Strategy’s pivot toward lending is driven in part by pressure on its stock price and valuation. The company’s stock has traded at a premium to its net asset value (NAV), allowing it to raise funds through equity issuance.

However, this premium has declined, with the multiple to NAV (mNAV) recently standing at 1.15, down from a high of 2.5. If the mNAV falls below 1, the company has stated that it may be forced to sell some of its Bitcoin holdings, further impacting the stock price and potentially creating a “reflexivity loop” that drives the value down even further.

In response to these challenges, Strategy is looking for ways to generate yield without selling its assets. Lending Bitcoin offers an alternative to diluting equity or liquidating its holdings, but it also introduces risks that could exacerbate the very issue the company is trying to avoid—further loss of value in its stock.

Crypto Lending Market Dynamics

The move by Strategy would place it in direct competition with firms like Tether, which dominates the centralized crypto lending market. Tether’s $14.6 billion book of loans mainly focuses on stablecoins, fueling leverage for buyers.

Strategy’s massive Bitcoin reserves, however, could flood the market with additional supply, lowering the cost to borrow Bitcoin and disrupting current market dynamics. The sheer scale of its reserves could distort the market for other players and reduce yields across the sector.

In addition, if Strategy enters the lending market, it could face challenges from established competitors, such as Nexo and Galaxy Digital, which have smaller collateral pools but established business models. Strategy’s 650,000 BTC reserves dwarf these players, making its entry into lending a significant event in the crypto lending ecosystem.

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