MicroStrategy Inc. MSTR executive chairman Michael Saylor's growing Bitcoin BTC/USD bet could unravel and break down the "magic money creation machine," warned an investment expert.
What Happened: Appearing on a recent episode of the All-In Podcast, Gavin Baker, managing partner and chief investment officer of Atreides Management LP warned that Saylor's Bitcoin bets could get "too big for the size" of MicroStrategy.
Baker called out Saylor's strategy of issuing debt and buying Bitcoin. "What he is doing is he is issuing debt and buying Bitcoin with the premise that it is always going to go up."
However, Baker has a word of caution here. "No trees grow to the sky," he said, adding that the interest expenses will keep rising for the company if Saylor keeps at it.
"The underlying business that pays the interest expense on the debt only does $400 million a year.
"Unless debt investors have absolute confidence… it will get to a point where it is too big for the size of his company," said Baker.
If Saylor over-collateralizes Bitcoin, Baker warned that the "magic money creation machine" will break down.
See Also: Michael Saylor Says His Bitcoin Strategy Is Simple: ‘Just Keep Buying BTC With Your Spare Capital’
Why It Matters: As of Nov. 24, 2024, MicroStrategy held 386,700 Bitcoins at a purchase cost of $21.9 billion, at an average price of $56,761.
MicroStrategy's "approach involves adding Bitcoin to the balance sheet, increasing stock volatility, and using convertible debt to enable low-cost capital raises." said Bernstein's Gautam Chhugani in a recent note.
For context, MicroStrategy's convertible notes do not offer investors any interest – and yet, they are still rushing to buy them as Bitcoin's bull run continues after Donald Trump's victory.
Price Action: At the time of writing, Bitcoin was trading at $99,308, up 1.7% in the last 24 hours, according to Benzinga Pro data.
MicroStrategy stock closed at $395.01 on Friday, up 2.2% for the day. Year-to-date, the stock has gained a whopping 476%.
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