Shares of Michael Saylor’s MicroStrategy (MSTR) took a sharp hit following its latest Bitcoin acquisition, raising concerns about the company’s highly leveraged strategy. On December 30, just before the Nasdaq trading session commenced, MicroStrategy announced a $209 million Bitcoin purchase. Despite its bold move, the company’s stock dropped 5.3% within the first hour, closing the day down 3.19% further in after-hours trading, at $293.59.
This Bitcoin acquisition continues the firm’s streak of weekly purchases since October 31, amassing 194,180 BTC in total. MicroStrategy funded the purchase by selling nearly 593,000 shares, signaling its reliance on equity sales to fuel its Bitcoin buying spree. While the company’s stock has surged over 340% since the beginning of the year, its 20.2% decline in the past month has fueled speculation about its financial stability.
Leveraging Bitcoin for “Hyperbitcoinization”
Market commentators have flagged concerns about MicroStrategy’s leveraged position. Trading resource The Kobeissi Letter highlighted unease over the firm’s proposed $10 billion increase in authorized shares, which could further dilute shareholder value. The company’s strategy, combining convertible notes and debt issuances, has left it with significant leverage, leading some to question its sustainability.
Something doesn't add up here:
— The Kobeissi Letter (@KobeissiLetter) December 30, 2024
MicroStrategy, $MSTR, has been known as the most popular "levered" #Bitcoin play of the year.
Meanwhile, over the last month Bitcoin has gained +2% while $MSTR is currently down nearly -50%.
What is happening? Let us explain.
(a thread)
Joe Burnett, head of market research at Unchained, described MicroStrategy’s approach as “hyperbitcoinization.” By leveraging its premium trading price, the company can sell shares above their net asset value (NAV), acquire more Bitcoin, and reduce debt, thereby increasing BTC per share. This rinse-and-repeat strategy has worked so far but leaves MicroStrategy exposed to Bitcoin’s notorious price volatility.
Polarizing Predictions for MicroStrategy
Felix Hartmann, founder of Hartmann Capital, suggested in a December 30 social media post that MicroStrategy’s stock is a ticking time bomb. Hartmann speculated that the company could ascend to the ranks of the top five firms by market cap within five years—before potentially collapsing into bankruptcy.
When he‘s unable to refi his debt in a bear market and unlike last cycle his operating business doesn’t cover debt repayments or interest? Wouldn’t happen till 2028-9 probably though.
— Felix Hartmann (@FelixOHartmann) December 30, 2024
Literally calling for MSTR to become one of the 5 biggest companies in the world, but I guess…
MicroStrategy’s inclusion in the Nasdaq-100 index earlier this month underscores its influence in traditional markets. However, its aggressive Bitcoin strategy has divided investors and analysts alike, leaving its future uncertain as it continues to straddle the fine line between innovation and overextension.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
Also Read: MicroStrategy Boosts Bitcoin Holdings with $209 Million Purchase, Eyes More Acquisitions
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