Vocal Bitcoin skeptic and gold advocate Peter Schiff is sounding the alarm on MicroStrategy’s (MSTR) ongoing strategy of issuing debt and equity to fund its massive cryptocurrency acquisitions.
Schiff warns that the enterprise software company's risky financial maneuvering is actually unsustainable.
Dilution spiral?
Schiff has stressed that a change in how Saylor’s company is financing its Bitcoin purchases.
MicroStrategy was previously able to comfortably fund its buying spree by selling shares at a premium. However, Schiff pointed out that the macroeconomic environment is forcing the company to pivot to more expensive capital.
"Now it's forced to issue preferred shares with an 11.5% yield," Schiff stated.
The company's software operations do not generate sufficient earnings to cover these high-yield obligations, and Schiff argues that the firm will eventually hit a wall. "Since MSTR has no earnings, this obligation can only be satisfied by selling more preferreds, discounted common, or Bitcoin," he explained, outlining a scenario that could lead to severe shareholder dilution or a forced sell-off of its digital treasury.
A 'giant Ponzi'
Canadian billionaire and mining financier Frank Giustra has also sided with Schgiff. He has described the company's debt-fueled Bitcoin accumulation as a house of cards waiting to collapse under broader macroeconomic pressure. "A giant ponzi that will unravel when the next financial crisis hits," Giustra stated, warning that there is one on the horizon.
The pushback
In the meantime, BitMEX Research countered the claim that MicroStrategy is in a desperate position, noting, "Nobody is forcing MSTR to do this. It's actually a great deal for MSTR." Instead of selling off Bitcoin or discounting common shares, the company has other financial levers to pull, such as reducing the coupon rate.
Schiff has been accused of deliberately misleading the public by framing a capital structure strategy as a "funding problem."
Dan Burgin
U.Today Editorial Team
