MicroStrategy faces a leverage confidence test
The leverage model of MicroStrategy faces a critical dilemma where the company must choose between diluting common stock or deferring preferred dividends to avoid selling Bitcoin.
The argument
The speakers debated how MicroStrategy (referred to as 'strategy' and 'Stretch') should handle its preferred instrument trading 5% below par. While one host argued that a large Bitcoin sale is necessary to shore up finances and restore confidence, Haseeb countered that selling Bitcoin destroys the core investment narrative, forcing the company to either dilute common shareholders or defer preferred dividends.
The thesis, stress-tested
✓ What validates it
- ✓MicroStrategy announces a common stock dilution to fund preferred obligations
- ✓Preferred dividend payments are officially deferred or skipped
▸ Risks discussed
- ▸Dilution of common shareholders via ATM offerings
- ▸Deferral or suspension of preferred dividends
- ▸Downward reflexivity if the price of Bitcoin continues to fall below key moving averages
Hear it yourself
"We're gonna talk about a handful of things on the podcast today. Is Michael Saylor going to kill Bitcoin? Bitcoin is trading at its two hundred week moving average while Stretch is trading off of its peg. Saylor is in the middle of a confidence game with a market. We'll see who's wins. Thomley and Bitmind have announced that they're going to issue an equity yield instrument right in the middle of Stretch being distressed. We're gonna talk about whether that's a good idea or not. Despite the weakness and the majors of crypto, some tokens are still very green on the week."
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