MicroStrategy’s soaring share price is getting noticed, but not necessarily by fans.
Critics are circling, too. Take Tatiana Koffman, author of the “Myth of Money,” who said this week that MicroStrategy can keep its Bitcoin buying plan going for only so long.
MicroStrategy’s singular strategy involves selling zero-interest “convertible” bonds and issuing stock to gobble up more Bitcoin. The company’s Bitcoin holdings have ballooned to $43 billion.
“Eventually, the debt will far eclipse equity, the trading premium will disappear, the conversion prices on the notes will feel unreachable and equity price will collapse under the weight of senior debt, particularly during a gnarly Bitcoin dip,” she said on X.
“But y’all are safe to keep playing this game for at least 6-12 months.”
Just yesterday, the firm picked up an extra $1.5 billion Bitcoin, bringing its total holdings to 439,000 Bitcoin.
Their strategy has worked. The stock is up more than 500% this year, outperforming Bitcoin’s 140% surge. The value of the shares is about 119% higher than the net value of its Bitcoin.
“Each new tranche of debt issued,” Koffman added, gets us closer to the moment “the Ponzi topples.”
MicroStrategy didn’t reply to a request for comment, but founder Michael Saylor has defended his tactics.
Responding to questions about whether the company is a Ponzi scheme, Saylor countered that the company’s strategy is similar to that of property developers who sell debt to fund construction.
“I would call it an economy,” Saylor told CNBC.
And the controversy hasn’t stopped companies from following in MicroStrategy’s footsteps.
Arbitrage
Koffman isn’t alone.
Clifford Asness, chief investment officer of quant hedge fund AQR, seized on Saylor’s use of the word “arbitrage.”
MicroStrategy earlier this month sold $1.5 billion of stock backed by $500 million of Bitcoin, then picked up $1.5 billion in Bitcoin, “capturing nearly a billion dollar gain in the arbitrage,” Saylor explained.
“It is an ‘arbitrage’ to existing shareholders at the expense of ravaging people buying new shares,” Asness said on X, noting that new investors are banking on MicroStrategy’s premium continuing to rise so they can issue more shares to subsequent investors.
“If only we had a word for that type of thing in investing,” he said. “Actually it’s two words.”
Asness added that as a quant fund, he’s unsure of AQR’s positioning when it comes to MicroStrategy. Through an AQR spokesperson, Asness declined to elaborate.
Short sellers have circled.
The percentage of shares that are out on loan to short sellers is relatively high, at 11% versus 8% of its Nasdaq peers.
Activist investor Andrew Left announced a short position in November, saying MicroStrategy’s value was “completely detached from BTC fundamentals.”
Reality check
Charlie Morris, founder of investment research firm ByteTree, also echoed the sentiment.
The shares “aren’t as tidy as people think they are,” Morris told DL News. At some point, reality will set in, he said.
“People will realise that new shareholders will be taken to the cleaners,” he said.
Pedro Solimano is a markets correspondent based in Buenos Aires. Got a tip? Email him at psolimano@dlnews.com.
