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A recent documentary by Financial Times has brought renewed attention to MicroStrategy’s Bitcoin-accumulation strategy to the masses, drawing the line between market speculators and those companies seeking to swap cash reserves for the digital assets.
Since 2020, MicroStrategy, which remade itself into Strategy, has been buying Bitcoins with the proceeds from stock sales and the issuance of convertible bonds, spending billions to buy up more than 568,000 Bitcoins, as of May 14.
Some market analysts view it as a smart capital deployment, using market premiums to ramp up Bitcoin holdings. Jeff Walton, who was a reinsurance broker and now a Digital Capitalist at Strategy, said, "Strategy raised $12 billion of capital in 50 days. It's incredibly hard to raise $100 million of capital, and they just raised $100 million of capital 120 times in 50 days, and they could buy Bitcoin with that capital. That's insane.”
According to Walton, there is no downside risk. He added, “I'm happy to take the downside risk, because I think the downside risk is zero.”
However, MicroStrategy’s Bitcoin-buying strategy does not bode well with all analysts, as per the film. If the price of Bitcoin drops significantly or stays low and doesn't recover for some time, MicroStrategy could face major problems.
“The virtuous circle can turn into a vicious cycle if the Bitcoin price falls,” Craig Coben, analyst at Bank of America, warned, noting the risk of eroding investor confidence and valuation premiums.
However, he also adds, “[...] but so far, it is working, and as long as Strategy can continue to command a premium to its net asset value, then it will continue to reap benefits for shareholders”.
However, doubts were cleared by MicroStrategy’s Chairman Michael Saylor.
Saylor said, “Our capital structure is constructed so that [if] Bitcoin falls 90% and stays there for four or five years and we would still be stable.”
Notably, at press time, MicroStrategy’s stock MSTR has been down by 0.81% in pre-market.
TheStreet Roundtable reached out to MicroStrategy for comment on its Bitcoin strategy. The company did not respond by press time.