Arthur Hayes, co-founder of cryptocurrency exchange BitMEX and Chief Investment Officer at Maelstrom Fund, cast aspersions on MicroStrategy Inc.’s MSTR debt-powered Bitcoin BTC/USD buying strategy, forecasting challenging times for the firm when the top cryptocurrency loses volatility.
What happened: In an interview with Benzinga, Hayes slammed MicroStrategy’s volatility monetization play, which includes issuing convertible debt and other fixed-income securities to buy Bitcoin.
“The reason why these are attractive instruments is because the stock and the Bitcoin they purchase, are volatile,” Hayes said.
Bitcoin has experienced a record-breaking run, rising by almost 50% in the last three months, helped by Donald Trump’s presidential victory. The rally has caused extreme upside volatility in Michael Saylor’s MicroStrategy, known more for its Bitcoin portfolio than the core software business. The stock has moved 62% in the last three months.
However, Hayes warned that things may not remain the same. “When the volatility of Bitcoin declines, most likely after a major crash, it will become difficult for MSTR to attract interest in these types of debt. At that point, the game is up.”
The Bitcoin bull said he won’t trade the MSTR stock at all, arguing that there are “better” ways to go long or short on Bitcoin.
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Why It Matters: Hayes’ remarks added to the growing concerns around MicroStrategy’s Bitcoin purchases.
Well-known economist Peter Schiff said previously that the company’s commitment to repay convertible note holders could be at a potential risk if Bitcoin drops significantly in value.
Martin Shkreli, known popularly as "Pharma Bro," went to the extent of calling the play a “big bubble," adding that he was short on MicroStrategy.
However, Anthony Scaramucci, CEO of investment firm SkyBridge Capital, has backed the strategy, arguing that the narrative that Bitcoin drops will force the company to liquidate its stash is overblown.
Price Action: At the time of writing, Bitcoin was exchanging hands at $93,573.37, down 0.90% in the last 24 hours, according to data from Benzinga Pro.
Shares of MicroStrategy closed 1.14% higher at $327.91 during Friday’s regular session. The stock has a consensus price target of $449.5 based on ratings by 12 analysts, with an average price target of $546.67 from Bernstein, TD Cowen, and Barclays.
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