Microstrategy Faces Insolvency Amid Bitcoin-Led Push by the CEO
There exists a palpable unease among MicroStrategy shareholders following CEO Michael Saylor’s insistence on making bitcoin the company’s primary treasury reserve asset. This growing discomfort stems from the CEO’s heavily publicized bitcoin purchases, which some experts believe, could result in the company’s bankruptcy.
The Perilous Impact of Saylor’s Bitcoin Investment Drive
In the midst of a global crisis brought on by COVID-19 and ensuing economic instability, Saylor embarked on a high-stakes venture. The CEO made a historical move by purchasing more than 71,000 BTC, valued at over $1.1 billion, intending to make this volatile digital currency MicroStrategy’s main reserve asset. This bold decision, however, has raised fears of insolvency for a firm that had previously enjoyed a robust market reputation.
Analytics and macro trader, Alex Krüger, echoed this perspective, remarking that, “Had MicroStrategy not owned any bitcoin, it would have been trading close to $300.” He further underlined the risky implications of Saylor’s bitcoin plunge: “The market is now pricing a bankruptcy risk due to overly aggressive use of leverage to finance bitcoin purchases.”
Bitcoin’s Influence on MicroStrategy’s Market Performance
The market’s response to Saylor’s Bitcoin endeavor has been twofold. On one hand, MicroStrategy’s shares gained a massive increase of 400%, rallying from $123.80 to as high as $631. What’s more, following a 50% Bitcoin price jump in December 2020, the company’s shares surged by 330%, demonstrating a positive correlation between the company stock and Bitcoin prices.
Despite these impressive gains, the market has also displayed hesitation, culminating in a 50% crash from the $631 peak to the $312 lows in February 2021. Furthermore, from mid-January to mid-February, Bitcoin’s price soared by 70%, while MSTR shares dropped by 50% over the same time frame. This divergence has intensified the fears of insolvency, putting into question the sustainability of Saylor’s Bitcoin-led strategy.
As the saying goes, “the higher the risk, the higher the reward.” But in this volatile world of cryptocurrency, the phrase may well transform to “the higher the risk, the closer to bankruptcy.” For Microstrategy, the danger is both literal and imminent. Decidedly, their future will hinge on Bitcoin’s performance— an unpredictable factor in an inherently unpredictable market.
