Speculation that Strategy (MSTR) could be headed for a “death spiral” of forced bitcoin liquidations has made the rounds in recent days as the cryptocurrency tumbled towards $60,000.

On Monday, Wall Street analysts from Benchmark and TD Cowen pushed back against that narrative, defending the durability of the company’s bitcoin treasury strategy. Both firms have given Strategy (MSTR) a "buy" recommendation.

"The death-spiral story assumes that Strategy is one bad week from selling bitcoins, and it skips several steps to get there. Before any meaningful bitcoin sale by Strategy, it would need to run through the $1 billion cash reserve it has in place to fund dividend payments," Benchmark's Mark Palmer said in his research note.

Strategy sold 32 BTC for approximately $2.5 million between May 26 and May 31, the first time the firm sold any of its holdings since it began acquiring bitcoin in December 2022. The company said it sold this modest amount of BTC at an average price of $77,135 per coin to fund distributions on its preferred STRC stock, or the Strategy Variable Rate Perpetual Stretch Preferred Shares.

That said, according to Palmer, because Strategy’s perpetual preferred stocks do not have "a hard maturity" that could trigger accelerated selling, there likely won't be an uptick in sales. "The company would have to move through a long sequence of failures before its bitcoin reserve, currently valued at almost $55 billion, would even enter the conversation," Palmer said. 

Since sinking in price to about $60,000, BTC has rebounded in the past 24 hours, trading above $66,000 as of 11:03 a.m. ET, according to The Block Price Page. That's nearly 50% lower than last year's high.

STRC model 'deliberate and durable'

STRC is a perpetual preferred share designed to trade near $100 while offering a variable monthly dividend, currently around 11.5% annualized. Strategy selling STRC has helped fuel bitcoin purchases.

While Palmer has characterized STRC as part of a "deliberate and durable" model that "converts demand for yield into long-term bitcoin exposure," at least one critic called the preferred shares a "Ponzi scheme" that could eventually fall into a death spiral, a negative feedback loop in a company's structure that could cause its stock price to collapse and force massive asset sales.

TD Cowen's Lance Vitanza and Jonnathan Navarrete said Monday in their note that Strategy's burden of paying STRC dividends should be manageable given the company's reserves. Although bitcoin's price does need to continue to appreciate, at least modestly, for Strategy's plans to bear fruit.

"STRC has materially dampened volatility across drawdowns, offering positive or near-flat returns even during periods when BTC experienced significant declines," TD Cowen said. "This dynamic supports the positioning of STRC as a capital preservation and income vehicle, in contrast to BTC’s high-volatility growth profile."

Also on Monday, Strategy said it has purchased an additional 1,587 BTC for approximately $100 million at an average price of $63,024 per bitcoin, bringing its total holdings to 846,842 BTC.

Strategy recently moved to pay STRC dividends twice-monthly. The move is meant to "stabilize price, dampen cyclicality, drive liquidity, and grow demand," Strategy's President and CEO Phong Le said at the time.