With Bitcoin hovering around new highs, there’s been a lot of noise recently in the crypto space. So much so, it feels like the magic crypto bus is loaded way beyond capacity. And the self-proclaimed driver of the bus is none other than Michael Saylor. He’s the CEO of MSTR and a very interesting character who loves to talk his book. I am still having trouble, however, trying to figure him out. I cannot decide whether he is some kind of innovative genius or a very accomplished con artist. The more I read about him and the more I listen to Saylor himself, I am leaning towards grifter. I think Strategy’s strategy is closer to that of a Ponzi scheme than it is a legit business model.
Strategy (the name alone screams that it’s not really a strategy) has a market cap that exceeds $103B. Yet they only hold $66B in Bitcoin. That’s a 50% premium above the already high price of Bitcoin. So why would someone buy MSTR instead of cash Bitcoin? Possibly for the leverage or maybe because it’s a familiar investment vehicle. At least that’s what the investment bankers raising capital will tell you. Sorry, but that still makes no sense to me. And that’s not all. Unfortunately, grifters generally attract other grifters and at least two other companies, both with shaky ethical backgrounds, just decided to follow the lead of Saylor. Enter GameStop (GME) and Trump Media (DJT). Both of these companies recently raised capital using convertible paper to buy Bitcoin. GME raised $1.3B and DJT raised $1B of convertible debt. For those new to convertible debt, they are hybrid securities that are essentially corporate bonds which can be converted into a predetermined number of common shares. Only in these latest offerings by GME and DJT, and similar to MSTR latest offerings, there is no interest to be paid and no posted conversion rates. Who would make such an investment? Why would anyone buy an asset at a 50% premium, not receive any interest for loaning the capital, and not know the eventual conversion rate? Unless Bitcoin never has a downtick, somebody is going to lose a lot of money. Run, Forest, Run!
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