While some critics label it reckless, advocates hail it as brilliant. Regardless, Michael Saylor remains firmly committed to Bitcoin, steering MicroStrategy through uncharted waters.
Co-founder of MicroStrategy, Michael Saylor, has pursued an assertive strategy for acquiring Bitcoin, which observers characterize as either a groundbreaking business move or an imprudent gamble.
Risks of an Unstable Asset
Critics caution that the company’s significant dependence on the volatile nature of Bitcoin brings substantial risks. A drastic decline in Bitcoin’s price could jeopardize the company's financial stability, impair its capacity to meet debt obligations, or limit its ability to secure additional funding.
Nevertheless, Saylor remains steadfast, asserting, "I have no reason to sell the winner."
MicroStrategy stands as the world’s largest corporate Bitcoin holder, boasting a staggering 447,470 BTC. Such a massive holding heightens the stakes not only for the company but also for the broader Bitcoin landscape.
Financing MicroStrategy's Bitcoin Acquisitions
Although MicroStrategy is technically a business intelligence software firm, its aggressive Bitcoin accumulation strategy has led it to function similarly to a Bitcoin treasury operation.
Saylor’s venture into Bitcoin began with a cash investment of $250 million in August 2020. Subsequently, he opted for debt financing, beginning with convertible notes—debt instruments that can convert into equity. These initial notes, often offered at low interest rates, aided in raising $650 million by December 2020, with subsequent issuances accumulating billions more.
In June 2021, MicroStrategy raised $500 million through senior secured notes, which provided a higher return rate, backed by company assets.
Most recently, on December 24, 2024, the company proposed a monumental increase in its common stock from 330 million to 10.33 billion shares and its preferred stock from 5 million to 1.005 billion shares. This flexible plan allows for phased capital increases rather than a one-time issuance of a substantial number of new shares.
This move aligns with the company’s ambitious 21/21 Plan, targeting a $42 billion capital raise over the next three years—split equally between equity sales and fixed-income instruments—to finance further Bitcoin acquisitions and initiatives such as establishing a cryptocurrency bank and offering Bitcoin-based financial products.
Criticism: A Reckless Scheme?
Emeritus Finance Professor David Krause of Marquette University argues that Saylor's strategy is misguided. He warns that a sharp decline in Bitcoin prices could have dire consequences for MicroStrategy (MSTR), resulting in a significant loss of shareholder equity, compromising debt repayments, and potentially leading to financial turmoil or bankruptcy, which could trigger massive stock sell-offs.
"In my extensive career in corporate finance and investments, I firmly believe that treasury assets should consist exclusively of liquid, low-risk securities, such as money market instruments," Krause stated in an interview with Cointelegraph.
MSTR has mostly traded at a premium over the net asset value (NAV) of its Bitcoin holdings, with Bitcoin assets constituting 51% of its market capitalization as of January 9, according to BitcoinTreasuries.net.
When the share price exceeds this NAV, MicroStrategy raises funds through debt or equity to purchase additional Bitcoin. However, Kruger warns that this approach invites risks associated with shareholder dilution.
This strategy creates what could be seen as a feedback loop—where the value of the company’s Bitcoin holdings enhances its market standing, facilitating further debt issuance for additional Bitcoin purchases.
Some analysts on social media have compared this looping strategy to a Ponzi scheme.
“The cycle relies on the continuous rise of BTC,” stated financial analyst Jacob King. “If BTC stagnates or plummets (which it inevitably will), the cycle collapses. This is simply unsustainable and resembles a large-scale Ponzi scheme.”
MicroStrategy did not respond to these criticisms when Cointelegraph reached out. Yet, in a recent media interview, Saylor drew an analogy between his strategy and real estate development in Manhattan.
"Just like Manhattan developers, whenever real estate values increase, they incur more debt to further develop real estate," he explained. "This has been happening for 350 years, contributing to the towering buildings of New York City. I would classify it as an economic principle."
Kruger, while primarily critical of MicroStrategy's Bitcoin strategy, noted in a recent paper that it does not conform to the SEC's formal definition of a Ponzi scheme.
According to the Securities and Exchange Commission, a Ponzi scheme is characterized by "investment fraud that utilizes payments owed to earlier investors from new investors' contributions."
Gracy Chen, CEO of the cryptocurrency exchange Bitget, aligned with Kruger’s perspective.
"Unlike a Ponzi scheme, which relies on fresh investor money to repay returns to previous backers, MicroStrategy's tactic hinges on the market-driven appreciation of Bitcoin," Chen elaborated. "This strategy resembles Charles de Gaulle's challenge to the Bretton Woods system by converting dollars into gold. It aims to exploit perceived flaws in modern monetary theory to capitalize on asset appreciation."
The Unquestionable Success of Saylor's Bitcoin Approach
As of January 8, MSTR shares were trading at $331.70, representing a staggering 2,200% increase since MicroStrategy's initial Bitcoin purchase on August 11, 2020, when shares closed at $14.44. During this same period, Bitcoin's value appreciated approximately 735%.
Regardless of one's opinion on Saylor's approach, his strategy has indisputably enhanced both MicroStrategy's cryptocurrency portfolio and its stock performance, securing the company's position in the Nasdaq-100 index as of December.
While there remains concern about shareholder dilution, supporters argue that Bitcoin's long-term growth potential may mitigate these risks. Additionally, Chen highlighted that MicroStrategy's convertible debt structure may provide a safety net during economic downturns.
"A prolonged bear market could pose liquidity challenges and escalate debt management issues. Nevertheless, the unsecured convertible debt structure offers some protection against immediate forced liquidations," Chen outlined.
“The company’s method for raising funds through equity offerings even during bearish markets further alleviates the risk of liquidating its Bitcoin holdings.”
The Bitcoin Acquisition Strategy: A Clear Mission
At its core, MicroStrategy’s objective is straightforward: continue purchasing Bitcoin.
This asset is viewed not merely as a long-term investment, but as a hedge against economic uncertainty and a vehicle for enhancing shareholder value. It can also enable the company to secure loans or generate capital for future business ventures, all while avoiding the need to liquidate its Bitcoin holdings.
"There’s significant profit potential within that substantial liquidity pool of Bitcoin," asserted Alexander Panasenko, head of product management at VixiChain. "By holding a large amount of this inflation-resistant asset, which retains value, the company can generate revenue either from simply holding it or through lending and borrowing opportunities."
However, detractors point to a noticeable absence of a definitive exit strategy for Saylor. Bitcoin proponents reject the necessity for one, viewing Bitcoin itself as the ultimate escape from traditional financial frameworks.
While stock dilution represents an imminent concern, the strategy has yielded significant benefits for MicroStrategy and the broader Bitcoin ecosystem, inspiring similar initiatives globally.
"As long as MicroStrategy continues to lead discussions about the role of digital assets in our evolving economy—evidencing broader adoption within new businesses and unveiling innovative strategies for leveraging digital assets—it represents a positive development," Panasenko noted.
"In the event of failures connected to such digital asset initiatives, it could cast a shadow over the entire industry, setting us back significantly."
