Strategy (formerly MicroStrategy) has been in the headlines recently after the price of Bitcoin crashed into the $84,000 area. The market crash brought the company perilously close to its average purchase price of $74,443, with just a 30% drop being the difference between putting the company's massive 649,870 BTC holdings in the red. This prompted the company to publicly defend its position and strategy amid criticism from economist Peter Schiff and others.
Is there a problem with Strategy's Bitcoin stash?
Economist Peter Schiff first called the strategy team last week, questioning the viability of the Bitcoin strategy given the digital asset's plummeting prices. This comes amid criticism that Michael Saylor's strategy of issuing MSTR shares to buy Bitcoin has already failed.
In his post, Schiff criticized the company's entire business model of issuing preferred stock and using the proceeds to actually buy more Bitcoin. According to the analyst, the company's entire business model was actually based on the fact that while the company was accumulating Bitcoin, the issued preferred shares would be purchased by income-oriented funds.
But Mr. Schiff complained that the company could not actually pay the published yield. In this case, once fund managers realize that these declared yields will never be met, they will be forced to start dumping MSTR shares, causing a “death spiral.”
At the time, the company addressed rumors of possible bankruptcy and explained that the company has a very long road ahead. The post on X reads, “At the current $BTC level, assuming the price stays flat, you are guaranteed a dividend for 71 years.” Additionally, the post explained that only a 1.41% increase in Bitcoin price could actually cover the company's dividend obligations.
Despite this, Schiff is not letting his company's guard down, and in another post he cited Strategy's claim that Bitcoin's 90% crash will not affect the company. The economist explains that even if this were true, it's unlikely that Strategy's investors would actually be okay with losing 90% of their investment.
Peter Schiff explains that if Bitcoin prices crash by 90%, MSTR stock will likely trade at a significant discount compared to its BTC holdings. In this case, investors' losses may accelerate.
As for BTC, the price is still hovering above $80,000 and Strategy Stash is still solidly profitable. According to data from the Bitcoin Treasuries website, the company still has a 16% return and current profits from its holdings are over $5 billion at the time of writing.
Featured image from Dall.E, chart from TradingView.com
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