Euro Pacific Capital President and Bitcoin critic Peter Schiff called MicroStrategy a “great short bet” in an interview with Kitco News and predicted its bankruptcy.
The entrepreneur criticized Michael Saylor’s company’s strategy of large-scale purchase of bitcoins through debt financing.
According to him, the firm’s obligations to pay large amounts to holders of convertible bonds pose a potential risk in the event of a serious drawdown in the price of the cryptocurrency.
Bond holders are under the “false impression” that they have invested in Bitcoin without the risk of loss and will simply get their money back, even in the event of bankruptcy, Schiff noted.
The only way to pay off debts for Saylor’s company will be to liquidate reserves in digital gold, Schiff believes.
Noted analyst Willy Wu also pointed out the risk of liquidating MicroStrategy’s corporate debt. The expert noted that if bondholders do not convert them into shares before maturity, the company will be forced to sell Bitcoin for payments.
According to Wu, this scenario will become a reality if MicroStrategy’s stock does not grow by ~40% in the next five to seven years.
He cited a potential decline in the bond premium to NAV as an additional threat to the company’s Bitcoin strategy. This may occur due to the proliferation of copycat competitors, as well as possible regulatory interference in future purchases.
Earlier, Bloomberg Opinion columnist Lionel Laurent expressed doubts about the viability of MicroStrategy’s debt policy in the long term.
He noted that the company is clearly overvalued – since the beginning of the year, its quotes have grown by ~650%, and digital gold by ~120%. For investors who consider the firm’s shares and bonds as investments in “proxy bitcoin”, the offer becomes too expensive.
The expert’s concerns were raised by MicroStrategy’s plans to raise $42 billion over three years to continue purchasing the first cryptocurrency.
However, Bernstein analysts believe that the company’s “unprecedented” increase in digital gold reserves could lead to an increase in its quotes by another 49%.
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Source: Cryptocurrency
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