MicroStrategy (MSTR) has recently made headlines due to Bitcoin’s precarious dip below the $84,000 mark, putting the firm alarmingly close to its average acquisition price of $74,443. With its colossal holdings of 649,870 BTC, the cryptocurrency’s market fluctuation has raised alarms, as a mere 30% drop could send the company’s position into the red. This has led MicroStrategy to defend its strategy amidst criticisms, notably from economist Peter Schiff.
Last week, Schiff publicly called into question MicroStrategy’s model, suggesting that the firm’s Bitcoin strategy may not withstand the current market turmoil. The economist scrutinized the company’s approach of issuing MSTR shares to fund Bitcoin purchases, implying that it is becoming increasingly untenable. In a post on X, Schiff challenged whether the company could truly sustain its business model of leveraging preferred stock sales to accumulate Bitcoin, especially given the current market conditions.
According to Schiff, fund managers who have invested in MicroStrategy’s preferred shares might soon realize they will not receive the promised yields. This could lead to a mass sell-off of MSTR stocks, potentially triggering a ‘death spiral’ for the company, as investor confidence wanes. Schiff’s warnings come as MicroStrategy contends with its stock price reflecting its Bitcoin holdings and broader market trends.
In response to these fears, MicroStrategy has attempted to reassure investors, publicly stating it has a significant runway to support its operations. The company asserted that even at current Bitcoin prices, it has sufficient dividend coverage for up to 71 years, implying that only a slight appreciation in Bitcoin would meet its dividend obligations. Nonetheless, the critics, including Schiff, remain unconvinced, and he has continued to question the durability of MicroStrategy’s financial model.
In a subsequent post, Schiff argued that even a hypothetical scenario where a 90% drop in Bitcoin value would not spell disaster for the firm might not alleviate investor anxiety. He maintains that such a deep plunge would likely lead MSTR shares to trade at significant discounts relative to Bitcoin, exacerbating losses for current investors. Hence, most investors likely would not stand idly by as their investments lose most of their value.
At present, however, the situation remains relatively stable, with Bitcoin trading above $80,000. MicroStrategy’s substantial Bitcoin cache continues to yield a profit, with current data indicating an impressive 16% gain, translating to over $5 billion in profits on its investments. This performance may cushion the firm for the time being, but the overarching questions of sustainability and market volatility loom large as economists and shareholders closely monitor the unfolding saga.
