Arca’s Jeff Dorman Disagrees with Claims that Saylor’s Strategy Faces Forced Bitcoin-Sale Risk

Strategy Inc.’s Bitcoin Model Faces Criticism

Strategy Inc.’s approach, which leverages Bitcoin, has recently been scrutinized, as doubts arise about its ability to endure long-term market challenges.

Among the most outspoken critics is Peter Schiff, a long-time Bitcoin skeptic and the Chairman of Schiff Gold, as well as the Chief Global Strategist at Euro Pacific Asset Management.

In a series of posts on X, Schiff remarked that Strategy claims its model depends on buyers attracted to “high-yield” preferred stocks. He asserted that the advertised yields “are never actually paid” and cautioned that the structure could enter a “death spiral” if demand were to diminish.

He expressed his belief that the company “will eventually go bankrupt,” and even challenged Michael Saylor to a debate at Binance Blockchain Week scheduled for early December in Dubai. It seems this invitation was, at least partly, intended to spark a public dispute regarding Strategy’s Bitcoin strategy.

On the other hand, Jeff Dorman, the chief investment officer at digital asset management firm Arca, offered a contrasting perspective. In his own posts on X, Dorman termed the concerns about Strategy’s risk profile as a “stupid and inaccurate view,” arguing that fears of the company needing to sell Bitcoin overlook the strength of its balance sheet.

While Dorman didn’t specifically respond to Schiff, his remarks reference a more widespread anxiety among skeptics who think that Strategy could face significant pressure if Bitcoin values drop sharply.

Dorman pointed out that Saylor’s 42% stake makes an activist takeover “nearly impossible.” He also highlighted that Strategy’s debt lacks a clause that would necessitate the liquidation of Bitcoin. Additionally, he noted that the company’s established software business is still generating positive cash flow, which aids in managing its interest expenses. He mentioned that borrowers typically don’t default just because they are nearing maturity, and it’s common for lenders to agree to extensions in what is often referred to as the “extend and pretend” practice.

Despite increasing its Bitcoin holdings, Strategy’s stock is feeling the heat. On Friday, Class A shares closed at $199.74, marking a 4.22% drop for the day and 33.42% decline year-to-date. For comparison, Bitcoin saw around a 0.4% return over the same timeframe.

As indicated by StrategyTracker, which monitors the financial landscape of companies involved with Bitcoin, Strategy’s diluted market-to-book value multiple stands at nearly 1.06x. This suggests that the stock is just slightly above conservative estimates of its Bitcoin-backed worth, even after factoring in potential future equity from options, warrants, and convertible notes.

Dorman mentioned that, while Strategy is no longer a significant marginal buyer of Bitcoin compared to ETF inflows, this does not make the company vulnerable to systemic risk. He added, “If you follow anyone who says MSTR is a risk to BTC, please tell them to call me.”