MicroStrategy Inc. CEO Michael Saylor’s aggressive Bitcoin strategy may be unsustainable, warned investment expert Gavin Baker on a recent podcast episode. Baker, managing partner and chief investment officer of Atreides Management LP, expressed concerns that Saylor’s plan to issue debt and buy Bitcoin could get “too big for the company.”
Saylor’s approach involves adding Bitcoin to MicroStrategy’s balance sheet, increasing stock volatility, and using convertible debt to enable low-cost capital raises. However, Baker cautioned that this strategy relies on interest investors having absolute confidence in the asset’s price appreciation.
The underlying business that generates interest expense on MicroStrategy’s debt only does $400 million a year, which may not be enough to sustain the company if Saylor continues to buy more Bitcoin. If the situation becomes too dire, it could lead to a breakdown of the “magic money creation machine.”
As of November 24, 2024, MicroStrategy holds 386,700 Bitcoins at a purchase cost of $21.9 billion, with an average price of $56,761. The company’s stock has gained 476% year-to-date and is currently trading at $99,308 per Bitcoin.
Baker’s warning comes as investors continue to flock to MicroStrategy’s convertible notes despite the lack of interest income. This trend suggests that investors are betting on Bitcoin’s continued bull run, which could have significant implications for Saylor’s strategy.
With Bitcoin trading at $99,308 and MicroStrategy stock up 2.2% on Friday, the situation is closely watched by investors and analysts alike. Baker’s warning serves as a reminder of the risks associated with Saylor’s aggressive Bitcoin bets and the need for caution in the market.
Source: https://www.benzinga.com/24/12/42377436/microstrategys-michael-saylor-risks-breaking-down-the-magic-money-creation-machine-with-his-growing-bitcoin-bet-says-expert