Peter Schiff Exposes Risks of BTC Strategy
MicroStrategy’s Bitcoin strategy is very simple: Raising debt to buy Bitcoin and selling shares at a premium to repeat the cycle. Until recently, it had been regarded as outstanding. At the start of November 21, the MicroStrategy price stood at a peak of $535.42. However, since then, it has sharply plummeted by over 33.94%.
Notably, during the period, the Bitcoin price has also dropped, but just 1.74%. The latest development does prompt many to question the credibility of MSTR’s BTC Strategy. Recently, renowned financial expert Peter Schiff, exposing the downsides of the MicorStrategy’s Bitcoin strategy, warned about the possible crash of both the BTC and MSTR markets. Has the ‘so called’ revolutionary Bitcoin strategy failed? Let’s try to understand the scenario deeper. Dive in!
Massive Stock Drop for MicroStrategy
In the last four days, the MicroStrategy has fallen approximately 33.94%. Reports suggest that the latest drop is the largest four-day drop the company has witnessed in its recent history. It is reported that the company has lost over $30 billion in market cap because of the drop.
MSTR Market Overview: Retail Investors and High Trading Volume
Before the drop, the MSTR market saw unusually high participation from retail investors. Reports indicate that last week, retail investors purchased $42M worth of MSTR stock in one day – the highest recorded buy. Data shows that at least $100M worth of MSTR stock was purchased by retail investors last week alone.
Importantly, the MicroStrategy market witnessed over $136B in trading volume last week, which is far higher than what Amazon, a company with a market cap 29x larger, generally experiences in a week.
Is MicroStrategy’s Bitcoin Strategy a Ponzi Scheme?
At present, MicroStrategy holds at least 386,700 Bitcoin tokens, worth nearly $35,764,258,860. However, the total market cap of the company is over 74.95B. This indicates that the company market cap is at least 2.1x higher than the value of its BTC holdings.
In the last two months, the MSTR market has seen a surge of 113.07%. During the same period, the BTC market has shown a rise of just 41.19%. This indicates that the MSTR market has performed nearly three times better than the BTC market during the period.
However, a comparative analysis of Bitcoin and MicroStrategy shows that lately MSTR has exhibited more volatility than BTC.
Broader Implications for Bitcoin and MicroStrategy
Criticising the fast pace of the execution of MicroStrategy’s plan to purchase $42 billion worth of Bitcoin, financial expert Schiff denounced the way the company has spent $10 billion of the planned amount to purchase BTC tokens lately. He also warned that once the plan is fully executed, both MicroStrategy and Bitcoin may experience a crash.
In conclusion, Bulls argue MicroStrategy’s strategy is transformative and positions the company for long-term success. However, Bears contend the strategy is unsustainable, likening it to a Ponzi scheme as debt and market risks grow.
