MicroStrategy Inc. MSTR co-founder Michael Saylor responded on Monday to critics who call the firm's Bitcoin BTC/USD acquisition strategy a Ponzi scheme, equating it to Manhattan's real estate industry.
What happened: During a CNBC interview, Saylor was asked his views on the argument that the company's much-discussed strategy, which capitalizes on high returns from Bitcoin to buy more Bitcoin, is a Ponzi scheme.
"Just like developers in Manhattan, every time real estate goes up in value, they issue more debt to develop more real estate," Saylor came up with a sharp retort. "That's why your buildings are so tall in New York City."
The Bitcoin advocate said that such a practice has been in place for 350 years and that he would call it "an economy."
For context, a Ponzi scheme is an investment fraud that pays early investors with money taken from later investors. The scheme collapses when the flow of new money slows down and the fraud entity cannot pay off earlier investors.
Why It Matters: MicroStrategy has been the frontrunner in Bitcoin's corporate adoption, with its stash ballooning to 439,000 BTCs, worth over $47 billion, according to data from bitcointreasuries.net, more than double from last year.
The company uses proceeds from equity and debt financing to add to its Bitcoin portfolio. As Bitcoin rallies, causing a surge in MicroStrategy stock's value, the firm issues more equities and interest-free convertible bonds to buy more Bitcoin.
Calamos Advisors LLC, a major hedge fund, described MicroStrategy's play as an "extreme example" of volatility monetization.
However, critics like David Trainer, CEO of New Constructs LLC, have deemed it a "giant house of cards" that would erode shareholders' wealth when it crashes.
Price Action: At the time of writing, Bitcoin was exchanging hands at $107,320.31, up 2.67% in the last 24 hours, according to data from Benzinga Pro.
Shares of MicroStrategy closed down 0.042% at $408.50 during Monday's regular session but were up 1.82% in pre-market trading.
The stock has a consensus price target of $449.5 based on the ratings of 12 analysts, with an average price target of $546.67 between Bernstein, TD Cowen, and Barclays.
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