Author: Yohan Yun, CoinTelegraph; Compiler: Deng Tong, Golden Finance

MicroStrategy co-founder Michael Saylor adopted an aggressive Bitcoin acquisition strategy. Onlookers believed that this was either a genius’ foresight. Or a reckless gamble.

The latter warned that MicroStrategy’s heavy reliance on volatile assets such as Bitcoin is fraught with risks. A sharp decline in the price of Bitcoin could put pressure on a company's balance sheet, exacerbating financial stress and possibly impairing its ability to repay debt or raise additional capital.

Despite the risks, Saylor remains steadfast. The American entrepreneur said he had "no reason to sell the winner".

MicroStrategy is the world’s largest corporate Bitcoin holder, holding 447,470 Bitcoins at the time of publication. These huge holdings increase risks for the company and the entire Bitcoin ecosystem.

MicroStrategy is nominally a business intelligence software company, but its aggressive Bitcoin accumulation means it is essentially a Bitcoin finance company.

Saylor’s Bitcoin buying spree began with a $250 million acquisition of the company’s cash in August 2020. He then turned to debt issuance, starting with convertible notes—debt that can be converted into equity. The notes, which often carry low interest rates, helped raise $650 million in December 2020 and subsequent issuances have raised billions more.

In June 2021, MicroStrategy issued $500 million in senior secured notes that offered a higher interest rate and were backed by the company's assets.

Most recently, on December 24, 2024, MicroStrategy proposed to increase its common shares from 330 million shares to 10.33 billion shares and its preferred shares from 5 million shares 1.005 billion shares. The plan provides the flexibility to raise capital over time as needed, rather than issuing all new shares at once.

This is in line with the company’s 21/21 plan, which aims to raise $42 billion over the next three years – half through stock sales and half through fixed income instruments – to fund further Bitcoin purchases , and explore initiatives such as developing crypto banks or offering financial products based on Bitcoin.

David Krause, an emeritus finance professor at Marquette University, said Saylor's strategy was "inappropriate."

He warned that BitcoinA significant price decline could severely impact MicroStrategy (MSTR), eroding shareholder equity, jeopardizing debt repayments, and potentially leading to financial distress or bankruptcy, triggering a sell-off in its stock.

As someone who has spent much of his career studying and teaching corporate finance and investing, and as a [chief financial officer] for more than a dozen years, Krause said in a written statement In 2017, I firmly believed that Treasury assets should be composed entirely of liquid and low-risk securities such as money market instruments."

MSTR trades at a premium to the net asset value (NAV) of its Bitcoin holdings. ). On January 9, the company’s Bitcoin holdings accounted for 51% of its market capitalization, according to BitcoinTreasuries.net.

When MSTR trades above its Bitcoin net asset value, the company raises money through debt or equity to buy more Bitcoin. However, Kruger warned that this strategy could dilute shareholder interests.

Theoretically, this approach creates a cycle in which a company's Bitcoin holdings boost its market position and stock price, leading to further debt issuance and the purchase of more Bitcoin.

Some social media analysts liken this circular strategy to a Ponzi scheme.

Financial analyst Jacob King said: “This cycle will only work if BTC continues to rise. If BTC stagnates or collapses (it will indeed collapse), the cycle will collapse. This is unsustainable and a huge Ponzi scheme."

Source: Jacob King

In a recent media interview, Saylor This approach was compared to real estate practices in Manhattan.

"Like developers in Manhattan, every time property values ​​go up, they issue more debt to develop more property," he said. “That’s why New York City’s buildings are so tall and it’s been like this for 350 years. I call it the economy.”

Kruger has been critical of MicroStrategy’s reliance on Bitcoin, saying in a recent One paper said this did not meet the SEC's official definition of a Ponzi scheme.

The securities regulator describes a Ponzi scheme as "a type of investment fraud involving the payment of purported returns to existing investors out of funds invested by new investors."

Cryptocurrency Gracy Chen, CEO of exchange Bitget, agreed with Kruger's analysis.

Unlike a Ponzi scheme that relies on new investors’ funds to pay returns to early investors, MicroStrategy’s approach relies on marketMarket driven Bitcoin value appreciation. ”

Chen pointed out, “This strategy is more similar to de Gaulle’s challenge to the Bretton Woods system by converting US dollars into gold. This is exploiting known weaknesses in modern monetary theory to profit from asset appreciation. ”

As of the close of trading on January 8, MSTR shares were trading at $331.70, since the company first purchased Bitcoin on August 11, 2020 (it closed at 14.44 USD) has risen approximately 2,200% during the same period. Whether one agrees with Saylor or not, the price of Bitcoin has increased by approximately 735%. His plan undoubtedly boosted MicroStrategy's cryptocurrency portfolio and stock performance, allowing the company to become a member of the Nasdaq 100 Index in December

While shareholder equity may face dilution. But proponents believe that Bitcoin’s long-term growth potential offsets these risks. Additionally, Chen noted that MicroStrategy. Convertible debt structures may serve as a protective buffer during a crisis

“A prolonged bear market could expose companies to liquidity challenges and heightened debt management risks. However, its unsecured convertible debt structure provides some protection from immediate forced liquidation," Chen explained.

The company's method of raising capital through equity issuance, even during a bear market, has further reduced ”

In short, MicroStrategy’s mission is simple: keep buying Bitcoin.

This asset is a long-term strategic holding, a means of hedging economic uncertainty, and a means of enhancing shareholder value. It can also be used to obtain loans or raise funds for future business opportunities without liquidating their Bitcoins.

“It is possible to profit from Bitcoin’s massive liquidity pools,” said Alexander Panasenko, head of product management at VixiChain. "When you hold a lot of liquidity in this inflation-proof asset that actually stores value, you can make money just by holding it and borrowing against it."

However, critics point out that Saylor Lack of clear exit strategy. Bitcoin maximalists believe that Bitcoin is the ultimate exit from the traditional financial system and therefore believe that Bitcoin is unnecessary.

Stock dilution remains a looming issue, but the strategy has largely benefited MicroStrategy and the broader Bitcoin ecosystem, inspiring imitators around the world.

“As long as [MicroStrategy] continues to spark discussions about the role of digital assets in the future economy, you can expect to see new companiesIt would be really good for companies to adopt it more widely and reveal new strategies for leveraging digital assets..." Panasenko said.

"If such proposals involving digital assets fail, it will cast a shadow on the entire industry. Going up the shading, basically takes us backwards. ”