Destabilizing speculation

10 quotes on MicroStrategy debt and creditworthiness if Bitcoin Gamble explodes

Business intelligence software company MicroStrategy started storing Bitcoin in August after CEO Michael Saylor said he wanted hedge against what he thought was a devalued dollar.

His Virginia-based business was barely trade at $ 135 at the time. Now one MSTR share is $ 494.33. Saylor has been lambasted as irresponsible for what is seen as a move away from the company’s core business that could threaten shareholder investments.

In its 2020 annual report, the Nasdaq-listed company said it did not intend to trade Bitcoin regularly, but to hold crypto for the long term. This year, the company announced plans to invest in more bitcoin.

Saylor bragged about taking MicroStrategy into debt to buy as much Bitcoin as possible for a debate with Frank Guistra, CEO of the Fiore group, a private investment management company and private companies.

“Take all your money and buy Bitcoin,” Saylor then advised investors. “Then take your time figuring out how to borrow more money and buy more Bitcoin. Then take your time to figure out what you can sell to buy more Bitcoin. Then Saylor added that investors would have to mortgage their homes and businesses to buy Bitcoin.

MicroStrategy is Bitcoin’s largest publicly traded company, and some traders say Saylor, along with Tesla CEO Elon Musk, is pumping up the cryptocurrency and manipulating its price to avoid diving underwater and being forced to sell.

MicroStrategy has around 91,579 bitcoins and said he paid on average $ 24,450 per Bitcoin to May 18. At the current price of $ 36,582.46, this equates to roughly $ 3.35 billion worth of Bitcoin. In relation to liquidity, with $ 3 billion in crypto, MicroStrategy is 50X optimized.

MicroStrategy Shares peaked at $ 1,315 in early February, compared to $ 100 in summer 2020, and have since fallen to $ 494.33 as of this writing.

Here are 10 quotes on MicroStrategy’s debt and creditworthiness if Saylor’s Bitcoin bet explodes.

‘MicroStrategy is completely irresponsible with shareholder capital’

Most of MicroStrategy’s bitcoin was purchased with funds raised in successive debt offers, as part of Saylor’s efforts to move away from what he sees as a devalued US currency, Washington Business Journal reported.

It’s a gamble and it makes the company vulnerable to volatile daily Bitcoin swings of 5-10%, said Marc Lichtenfeld, chief revenue strategist at The Oxford Group.

“I think MicroStrategy is completely irresponsible with shareholder capital by placing a lot of their assets in highly speculative and volatile assets,” Lichtenfeld said in an interview with the Washington Business Journal. “I’ve never seen a company do that. It’s beyond the excesses that I saw during the dot-com boom, and I think it makes them very, very vulnerable.

Compare MicroStrategy to Tesla’s Bitcoin holdings, it’s apples to oranges

MicroStrategy had approximately $ 1.7 billion in debt and its cash flow totaled $ 59.7 million as of December 31, compared to $ 456.7 million on December 31, 2019. By comparison, Bitcoin’s purchase of 1, Tesla’s $ 5 billion was a relatively small amount of the company’s $ 19.38 billion. in cash and cash equivalents reported at the end of 2020, the Washington Business Journal reported.

“You can say that (Tesla) is diversifying a bit, covering a bit,” Lichtenfeld said. “While MicroStrategy, you can’t make a diversification argument because they’re all concerned with that particular asset. I would feel exactly the same if they went all-in on physical gold or any other currency or asset. “

Bitcoin ‘is speculation’, not their core business

Since bitcoin and other digital assets are considered “indefinite-lived intangibles” rather than currencies, even a temporary drop below what the company paid for them can force a company to depreciate their value, the Wall Street newspaper reported. MicroStrategy recorded a net loss in the third quarter of 2020 partly due to fluctuations in Bitcoin prices.

“If a company is substituting cash in its treasury to buy cryptocurrency, that’s speculation,” said David Kotok, chief investment officer at Cumberland Advisors. “They can win, they can lose, but that’s not their core business.”

Breach of fiduciary duty

Saylor might be right, Lichtenfeld said. The value of Bitcoin could continue to rise, but a publicly traded company is not the right way to invest in cryptocurrency and it is a violation of the fiduciary duty to use company resources. to do it. Money raised by MicroStrategy should be used to improve MicroStrategy’s business.

“His trading is completely distorted from the fundamentals of the company,” Lichtenfeld said of his actions. “It’s totally related to Bitcoin. There really is no reason to hold the stock until it starts trading at its fundamentals again. “

Reckless but not necessarily illegal

In 2000, Saylor’s MicroStrategy was sanctioned by the United States Securities and Exchange Commission and forced to pay $ 11 million in a regulation, accused of overestimating its profits to make a listed company appear profitable.

“The fact that Michael Saylor, the co-founder, CEO and principal shareholder, makes reckless decisions with company funds – whether good or bad – is probably not illegal …”, wrote Cas Piancey in a Way post titled “MicroStrategy Before Bitcoin”.

Recognition of risk

In its Feb. 12 annual report filed with the SEC, MicroStrategy acknowledged that Bitcoin can be risky, volatile, subject to regulatory scrutiny and potential security concerns, and is little understood.

“We have only recently adopted this bitcoin acquisition strategy and are continually reviewing the risks and rewards of such a strategy,” the company wrote in the annual report. “This strategy has not been tested over time or under various market conditions. Some investors and other market participants may disagree with this strategy or the actions we take to implement it. If bitcoin prices fall or our bitcoin acquisition strategy proves unsuccessful, it would negatively impact the market price of our Class A common stock. ”

Stockman, Bitcoin and the tulip mania

David Stockman, former director of President Ronald Reagan’s Office of Management and Budget, tweeted about Bitcoin and tulipomania.

“Speculators haven’t gone so mad since the tulip bulb craze. Michael Saylor just borrowed $ 400 million to buy more bitcoin because, “I consider bitcoin to be the most secure, reliable, and secure thing in the entire economic world.” MSTR’s market cap was $ 12.2 billion, now $ 4.6 billion, rising to $ 0.0 billion. “

“Alright Boomer,” replied Abeal the 20th Century @PevaBruehound.

What if Bitcoin crashes below $ 20,000?

Crypto gold and bear broker Peter Schiff tweeted, “I don’t think @michael_saylor knows about Murphy’s Law. What happens if #Bitcoin crashes below $ 20,000? Will #MicroStrategy sell stocks at depressed prices to strengthen its balance sheet? Will he sell Bitcoin to raise funds? If MicroStrategy Goes Bankrupt, Will HODL Creditors Its Bitcoin? “

Kenny Ligthart replied, “Damn sake, you’re boring. What if aliens visit us and tell us there’s tons of gold on Mars? Why can’t you just appreciate the fact that bitcoin is the very first sovereign currency in favor of ordinary people instead of the dollar which only favors banks and governments? ”

The poster child for crypto hubris

Michael Kao, a Los Angeles-based investment analyst, tweeted @UrbanKaoboy that there was “no bigger poster for crypto-hubris” than Saylor, who he called “Lord of Cyber Hornets “. Kao questioned Saylor’s decision to issue convertible bonds to buy Bitcoins and hold them in perpetuity. The “HODL BTC” move “created extremely destabilizing influences in MSTR’s capital structure,” Kao tweeted. Kao added that the “negative gamma-like” effect between MicroStrategy shares and Bitcoin could leave Saylor’s strategy of investing in the digital asset exposed to insolvency. This could force him to throw away Bitcoins.

“Except as a manager of a listed company with a board of directors charged with the same fiduciary duties to shareholders / creditors, HODL’s decision to 100% asset + theft could be snatched from him at the most inopportune moment. “, says Kao.

“By issuing so much debt and incorporating ‘puts’ into its capital structure and simultaneously increasing the volatility of its assets, it also increases the likelihood of that option being exercised – euphemism for ‘default / bankruptcy’,” Kao tweeted.

Bitcoin-backed unwanted bonds

MicroStrategy’s decision, released on June 7 to borrow $ 400 million to buy more Bitcoin while depreciating the value of its existing holdings, is the first-ever sale of junk bonds used to fund Bitcoin purchases, Bloomberg reported.

“The $ 400 million in debt is not being used to fund an acquisition or growth. It is used to speculate on a volatile asset, ”Lichtenfeld said. “Does MicroStrategy still have a business or is it just a proxy for Bitcoin – with borrowed money?” “

Image credit: pialhovik

Listen to GHOGH with Jamarlin martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles and Biden. He talks about the risk factors for Bitcoin as an investment asset, including origin risk, speculative market structure, regulation, and environment. Are the financial markets at large in a massive speculative bubble?

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