MicroStrategy, led by Michael Saylor, has made headlines as soon as once more with a daring Bitcoin acquisition. Between November 18 and 24, 2024, the corporate bought 55,500 BTC for roughly $5.4 billion, averaging $97,862 per Bitcoin. This brings MicroStrategy’s whole Bitcoin holdings to 386,700 BTC, acquired for roughly $21.9 billion at a median worth of $56,761 per Bitcoin. The corporate additionally reported spectacular Bitcoin yields, with a 35.2% quarter-to-date (QTD) return and a 59.3% year-to-date (YTD) return.
Nevertheless, not everyone seems to be applauding this technique. Jason Calacanis, a well known entrepreneur and angel investor, shared a tweet questioning the sustainability and dangers of MicroStrategy’s aggressive Bitcoin play.
So that you’re taking out loans towards your bitcoin holdings so as to purchase a LOT extra bitcoin…
… which lowers the availability of bitcoin
… which makes bitcoin go up
… which makes the inventory go up
… which creates a niche between the bitcoin holdings and the company valuation… https://t.co/nTtrQiN2BZ— @jason (@Jason) November 25, 2024
MicroStrategy’s Leverage-Pushed Bitcoin Technique
MicroStrategy has change into synonymous with Bitcoin accumulation, utilizing its holdings and company inventory as collateral to safe loans. These loans are used to buy extra Bitcoin, making a cycle of accelerating leverage. By decreasing Bitcoin’s market provide via massive purchases, MicroStrategy not directly influences its worth.
This technique additionally impacts the corporate’s inventory. As Bitcoin’s worth rises, so does MicroStrategy’s valuation resulting from its large holdings, attracting buyers in search of oblique publicity to Bitcoin. The corporate’s common acquisition worth of $56,761 per Bitcoin suggests vital unrealized good points, with Bitcoin at the moment buying and selling close to $92,548.
Nevertheless, this strategy ties the corporate’s monetary stability to Bitcoin’s notoriously unstable worth actions. A downturn may set off margin calls or liquidity crises, threatening each the corporate’s belongings and inventory efficiency.
Jason’s Critique of the Technique
In his tweet, Jason Calacanis humorously but critically dissects the potential pitfalls of MicroStrategy’s strategy. He outlines how the cycle of leveraging Bitcoin holdings to purchase extra Bitcoin creates a suggestions loop that may artificially inflate each Bitcoin’s worth and MicroStrategy’s inventory. The rising valuation permits for extra loans, perpetuating the cycle.
Jason highlights dangers corresponding to overleveraging, market volatility, and the widening hole between Bitcoin holdings and company valuation. He additionally factors to the potential for brief sellers to use this discrepancy, resulting in market instability. Whereas acknowledging the innovation, Jason’s critique underscores the precariousness of relying so closely on leverage in a unstable market.
As MicroStrategy continues its Bitcoin journey, the talk between daring innovation and monetary danger persists.
