The Credit Rating Methodology of Bitcoin Treasury Companies

Orthogonal Divergence

01 Nov 2025 • 4 min read

This post is AI output using Perplexity. It finally explains why its accurate for MSTR to claim they received their first rating. It's off-putting that everybody has willingly ignored the fact that MSTR has been given ratings in the past but this document does a great job explaining why MSTR bears no fault in claiming its newness. The crux of the argument is the fact that a new methodology S&P had to create specifically for a Bitcoin Treasury company - a highly flawed methodology but its a starting point. This is specifically what I asked to be summarized below.

I have to agree that it is significant that there now exists a framework, no matter how flawed, to evaluate companies holding Bitcoin in its treasury. It is remarkable how much cement-pouring MSTR is doing on behalf of the industry. It had do be frustrating to spend so much time with S&P only to get a weak rating with a poorly expressed methodology behind it. The good news for MSTR is that its only going to improve as S&P improves their understanding of MSTR's structures.

-- Brian Hirschfield

S&P's New Methodology for Bitcoin Treasury Companies

S&P Global Ratings had to develop a completely new assessment framework to evaluate Strategy Inc. as a Bitcoin treasury company, marking a significant departure from traditional credit rating methodologies. Here's what makes this approach different:

Core Methodological Shifts

Treatment of Bitcoin as an Asset Class

Under S&P's new methodology, Bitcoin is excluded from equity calculations despite its significant market value. As stated in result [5]:

"Under S&P's methodology, bitcoin is excluded from equity calculations due to its volatility and uncorrelated market risks. That accounting treatment leaves Strategy with a capital shortfall on paper, even though it owns billions in digital assets."

This creates what S&P terms "negative total adjusted capital" - a situation where a company holds valuable assets that don't count toward its capital strength in the rating agency's framework.

Currency Mismatch Framework

S&P introduced a specific analysis for what they call an "inherent currency mismatch":

Strategy's assets are almost entirely in Bitcoin
All liabilities (debt and dividends) are in U.S. dollars
This creates operational risk during Bitcoin price downturns

As noted in result [5]: "That means Strategy could face pressure to sell bitcoin — possibly at a loss — if it can't raise enough new capital in a downturn."

Key Risk Factors in the New Framework

S&P's methodology identifies five primary risk dimensions for Bitcoin treasury companies:

Asset Concentration Risk - Strategy's extreme concentration in a single volatile asset (640,808 BTC worth ~$74 billion as of October 2025)
Risk-Adjusted Capitalization - Bitcoin's exclusion from capital calculations creates what S&P views as "thin capitalization" despite massive asset holdings
Business Diversification - The near-complete reliance on Bitcoin as a value driver, with the software business being "roughly breakeven" and contributing minimal revenue
Liquidity Profile - "Minimal U.S. dollar liquidity" meaning limited capacity to meet dollar obligations without selling Bitcoin
Debt Structure Vulnerability - $8 billion in USD-denominated convertible debt maturing between 2028-2031, creating potential refinancing risks

Controversial Aspects of the Methodology

The methodology has drawn criticism from crypto industry analysts who argue it misunderstands Bitcoin's unique properties:

"Treating Bitcoin as NEGATIVE capital ignores its incredible liquidity, independence from the rest of the financial system, and all of its hedging properties." [4]

Critics note that S&P's framework:

Fails to recognize Bitcoin's high liquidity (often more liquid than many traditional "safe" assets during crises)
Doesn't account for Bitcoin's structural independence from traditional financial systems
Overlooks Bitcoin's potential as a hedge against currency devaluation

Why This Methodology Matters

This new framework represents a watershed moment because:

It establishes the first institutional credit assessment standard for Bitcoin treasury companies
It creates a pathway for traditional institutional investors to gain Bitcoin exposure through rated debt instruments
It signals that Bitcoin is now being treated as a serious asset class within traditional finance frameworks

As noted in result [4], this methodology potentially opens the $130 trillion global fixed-income market to Bitcoin exposure, as "credit ratings are a primary gatekeeper for the $130 trillion global fixed-income market."

The methodology, while conservative in its initial assessment (rating Strategy at 'B-'), represents S&P's attempt to bridge traditional credit analysis with the unique characteristics of Bitcoin as a strategic reserve asset - a balance that will likely evolve as more data becomes available about Bitcoin's long-term performance as a treasury reserve asset.