Veteran investor Ross Garber issued a cautionary note on Monday regarding the leverage that MicroStrategy, a company trading under the ticker symbol MSTR, has taken on with its Bitcoin holdings. He suggested that the company’s heavy reliance on Bitcoin could lead to serious repercussions.
In a recent communication, he expressed concerns about strategies that involve risk, pondering their sustainability: “Will they have enough strength to survive?” This sentiment reflects a shared worry among investors about the implications of such strategies.
MSTR, frequently viewed as a proxy for Bitcoin, follows a cyclical approach of issuing stock and bonds to purchase more Bitcoin as values rise, which seems to be a double-edged sword.
Garber’s thoughts echoed those of economist Peter Schiff, who has been vocal about his discontent with MicroStrategy’s business model. Schiff argues that the company is on an unsustainable path, having to sell shares just to meet dividend and interest commitments.
Interestingly, MicroStrategy recently announced it has $1.44 billion in reserves, aimed at bolstering dividends and interest payments without needing to sell Bitcoin during economic downturns.
Michael Saylor, the chair of the company, mentioned possibilities of boosting dividends through Bitcoin sales or derivatives. This comes at a time when Bitcoin’s value has plummeted, adversely affecting the company’s stock price. MicroStrategy is currently navigating a precarious position, holding about 650,000 BTC at an average price of $74,433. Should Bitcoin drop another 14%, it would significantly undermine the company’s financial standing.
Previously, Gerber indicated that MicroStrategy was designed to withstand substantial drawdowns, suggesting confidence in its structural integrity. However, the balance of risk and reward seems tenuous at the moment.
