“Overheated” is how short-sellers Citron Research described MicroStrategy Inc. on Thursday. That somehow understates the hype surrounding company founder Michael Saylor’s laser-eyed bet on Bitcoin using capital-market funding, which has fueled MicroStrategy’s stock-price rise of over 600% this year. It looks more like a corporate-finance version of an infinite money glitch in video-games — lucrative, addictive and likely unsustainable.
MicroStrategy’s core gameplay loop goes something like this: Tap debt and equity markets to raise cash, spend that cash on Bitcoin, watch its shares ride the Bitcoin price higher, go back to markets to raise more cash, rinse and repeat. This is the fun part of any glitch; the license to print huge sums of money that seem to have no bearing on reality. MicroStrategy’s average purchase price of Bitcoin is just under $40,000, according to Barclays estimates, and with Bitcoin trading at almost $100,000 its current hoard is worth approximately $24 billion. That is orders of magnitude higher than the $4.3 billion debt on the company’s balance sheet — debt being taken on with a 0% coupon via convertible bonds. The company is gearing up to borrow more.
What makes the glitch likely addictive for Saylor — aside from his unshakable faith in the “goddess of wisdom” and “fire of truth” that Bitcoin represents, of course — is the fact that it seems to be getting easier, not harder, as time goes on. MicroStrategy’s stock is valued at 2,000 times next year’s earnings and is attracting new buyers, including digital-asset ETFs, as Bitcoin’s price soars and analysts unanimously rate the shares a “Buy.” Remarkably, the company’s creditworthiness as rated by agency S&P has actually improved, rising to B- from CCC+. Considering this firm is plowing billions into illiquid assets with no cash flows, the CFA-holding TradFi world seems to have some laser eyes of its own.
Now, as MicroStrategy doubles down with a plan to raise $42 billion to buy more Bitcoin, the issue of sustainability is hovering into view.
