Jason Calacanis Questions MicroStrategy’s Bitcoin Strategy

MicroStrategy, led by Michael Saylor, has made headlines once again with a bold Bitcoin acquisition. Between November 18 and 24, 2024, the company purchased 55,500 BTC for approximately $5.4 billion, averaging $97,862 per Bitcoin. This brings MicroStrategy’s total Bitcoin holdings to 386,700 BTC, acquired for roughly $21.9 billion at an average price of $56,761 per Bitcoin. The company also reported impressive Bitcoin yields, with a 35.2% quarter-to-date (QTD) return and a 59.3% year-to-date (YTD) return.

However, not everyone is applauding this strategy. Jason Calacanis, a well-known entrepreneur and angel investor, shared a tweet questioning the sustainability and risks of MicroStrategy’s aggressive Bitcoin play.

So you’re taking out loans against your bitcoin holdings in order to buy a LOT more bitcoin…

… which lowers the supply of bitcoin
… which makes bitcoin go up
… which makes the stock go up
… which creates a gap between the bitcoin holdings and the corporate valuation… https://t.co/nTtrQiN2BZ

— @jason (@Jason) November 25, 2024

MicroStrategy’s Leverage-Driven Bitcoin Strategy

MicroStrategy has become synonymous with Bitcoin accumulation, using its holdings and corporate stock as collateral to secure loans. These loans are used to purchase additional Bitcoin, creating a cycle of increasing leverage. By reducing Bitcoin’s market supply through large purchases, MicroStrategy indirectly influences its price.

This strategy also affects the company’s stock. As Bitcoin’s price rises, so does MicroStrategy’s valuation due to its massive holdings, attracting investors seeking indirect exposure to Bitcoin. The company’s average acquisition price of $56,761 per Bitcoin suggests significant unrealized gains, with Bitcoin currently trading near $92,548.

However, this approach ties the company’s financial stability to Bitcoin’s notoriously volatile price movements. A downturn could trigger margin calls or liquidity crises, threatening both the company’s assets and stock performance.

Jason’s Critique of the Strategy

In his tweet, Jason Calacanis humorously yet critically dissects the potential pitfalls of MicroStrategy’s approach. He outlines how the cycle of leveraging Bitcoin holdings to buy more Bitcoin creates a feedback loop that can artificially inflate both Bitcoin’s price and MicroStrategy’s stock. The rising valuation allows for additional loans, perpetuating the cycle.

Jason highlights risks such as overleveraging, market volatility, and the widening gap between Bitcoin holdings and corporate valuation. He also points to the potential for short sellers to exploit this discrepancy, leading to market instability. While acknowledging the innovation, Jason’s critique underscores the precariousness of relying so heavily on leverage in a volatile market.

As MicroStrategy continues its Bitcoin journey, the debate between bold innovation and financial risk persists.