Is MSTR's strategy of buying coins with leverage not working?

Recently, MSTR has continued to buy coins. On December 30, MicroStrategy (MSTR) bought Bitcoin for 0.209 billion dollars, then the stock price plummeted by more than 8%, and the market began to worry about its highly leveraged operation.

On Monday, the opening price of MSTR was $318.89. The stock price fell 5.3% in just one hour, and the stock price fell further to $293 after press trading.

According to company documents, MicroStrategy recently sold 59,2987 shares to fund this Bitcoin acquisition. Since October 31, the company has been buying bitcoins for eight consecutive weeks, increasing its holdings by a total of 19,418 bitcoins.

Trading resource platform The Kobeissi Letter said that the market is concerned about MicroStrategy's proposal to increase authorized shares by 10 billion shares. Through a combination of convertible notes and debt issuances, MSTR is highly leveraged. Companies must issue more debt or shares to continue their Bitcoin buying frenzy.

“However, if the authorized share increase is approved, the company's total shares may surge from 0.33 billion to 10.33 billion shares.”

MicroStrategy shares fall, and the market is concerned about its leverage strategy

Although MSTR shares have dropped 20.18% over the past 30 days, they have risen 342.15% since this year.

Felix Hartmann, founder of Hartmann Capital, predicts that in the long run, MicroStrategy's stock price “will eventually collapse, but most bears will seize the wrong timing and suffer losses”. He also stated:

“Within 5 years, MSTR will first become the top 5 company by market capitalization and then eventually go bankrupt. We're still in the early stages.”

Joe Burnett, head of market research at Unchained, called MicroStrategy's current strategy “hyperbitcoification.” He stated that the company increased its Bitcoin holdings per share by trading at high premiums. Burnett further explained:

“The high premium allows them to sell shares at a price higher than their net asset value, buy more bitcoins, and reduce leverage, thereby further increasing the amount of bitcoins per share.”

Notably, MicroStrategy was included in the Nasdaq 100 Index on December 23, which means it became one of the 100 largest NASDAQ companies by market capitalization.

Bitcoin acquisitions are 'much faster than initially expected'

Last week, MicroStrategy was seeking shareholder approval to increase the number of authorized Class A common shares and preferred shares, according to the company's initial proxy statement to the SEC. This will provide more financial support for the company, which has transitioned from a software maker to a Bitcoin accumulator.

MicroStrategy notes in the filing that the company's Bitcoin acquisition was “much faster than initially anticipated.”

Since announcing plans to raise $21 billion in additional stocks and bonds at the end of October last year, MicroStrategy has begun an aggressive Bitcoin acquisition campaign. To date, MicroStrategy has issued approximately $13 billion in shares and $3 billion in convertible bonds under this plan, and has used all of these funds to buy Bitcoin.

Currently, MicroStrategy has become the world's largest corporate Bitcoin holder, holding about 0.439 million bitcoins, with a market capitalization of about 42 billion US dollars, accounting for more than 2% of the world's total bitcoin volume.

Sean McNulty, head of liquidity provider trading at Arbelos Markets, said:

“The market is forward-looking at MicroStrategy's Bitcoin buying behavior, which is the biggest reason for the previous rise in the market. Now keeping an eye on MicroStrategy's developments is part of my daily work.”