“Overheated” is how short-sellers Citron Research described MicroStrategy Inc. on Thursday. That somehow understates the hype surrounding company founder Michael Saylor’s laser-eyed bet on Bitcoin using capital-market funding, which has fueled MicroStrategy’s stock-price rise of over 600% this year. It looks more like a corporate-finance version of an infinite money glitch in video-games — lucrative, addictive and likely unsustainable.
MicroStrategy’s core gameplay loop goes something like this: Tap debt and equity markets to raise cash, spend that cash on Bitcoin, watch its shares ride the Bitcoin price higher, go back to markets to raise more cash, rinse and repeat. This is the fun part of any glitch; the license to print huge sums of money that seem to have no bearing on reality. MicroStrategy’s average purchase price of Bitcoin is just under $40,000, according to Barclays estimates, and with Bitcoin trading at almost $100,000 its current hoard is worth approximately $24 billion. That is orders of magnitude higher than the $4.3 billion debt on the company’s balance sheet — debt being taken on with a 0% coupon via convertible bonds. The company is gearing up to borrow more.
