MicroStrategy’s Debt-for-Bitcoin Strategy Faces Long-Term Viability Concerns

In a recent op-ed for Bloomberg Opinion, Lionel Laurent raised concerns about MicroStrategy's long-term sustainability in using a debt-for-Bitcoin strategy.

He pointed to a notable event where Citron Research’s short position on the company caused a significant 16% drop in its stock price. Despite this, MicroStrategy has steadily grown in value, becoming one of the top 100 largest publicly traded companies in the U.S., alongside industry giants like Intel.

Since adopting Bitcoin as its primary treasury reserve asset, the company has experienced a dramatic increase in valuation, expanding roughly 50 times. This strategy involves using low-interest debt to raise funds for Bitcoin acquisitions, and MicroStrategy has recently raised another $3 billion through convertible notes.

Its Bitcoin holdings now exceed $30 billion, showcasing the boldness of its approach. However, Laurent highlights the substantial risks involved, particularly a potential sharp decline in Bitcoin’s price. Such a drop could force the company to liquidate assets, leading to significant financial losses.

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Even if Bitcoin doesn’t face a drastic collapse, MicroStrategy’s valuation remains highly inflated compared to its net asset value, a factor that could still create problems. CEO Michael Saylor, known for his resilience after enduring a $6 billion loss in 2000, appears undeterred by mounting skepticism. He acknowledged the inherent risk of Bitcoin’s value plummeting to zero, but reassured that investors in the company are fully aware of and accepting this extreme risk.

Alexander Zdravkov