Strategy's 'Entire Business Model Is A Fraud': Gold Bug Peter Schiff Challenges Michael Saylor To A Debate
Bitcoin treasury company Strategy (NASDAQ:MSTR) is operating a fraudulent business model, economist Peter Schiff has alleged.
“MSTR’s entire business model is a fraud,” the Euro Pacific Asset Management global strategist said Sunday on X, challenging Strategy Chair Michael Saylor to a debate at the cryptocurrency conference Binance Blockchain Week scheduled for early December in Dubai.
“Regardless of what happens to Bitcoin, I believe $MSTR will eventually go bankrupt,” Schiff added.
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Schiff, in a separate X post, said Strategy would not pay the dividends on the preferred shares it has increasingly come to depend on to raise capital to acquire Bitcoin.
“Once fund managers realize this they’ll dump the preferreds & $MSTR won’t be able to issue any more, setting off a death spiral,” he said.
Strategy over the past five years has built a business around issuing equity to accumulate Bitcoin. The idea? Maximizing Bitcoin per share for shareholders and acting as a proxy for investors who ordinarily can not gain exposure to the digital asset.
Schiff’s remarks come as Strategy has increasingly turned to preferreds rather than common stock for capital raises in recent months. The shift comes as the company’s premium to net asset value has contracted significantly, making it difficult to issue equity to fund new Bitcoin purchases without diluting shareholders. The metric has fallen from over 2.5 to less than 1 in the past year.
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The contraction has coincided with an explosion of copycat companies in recent months. According to Bitcoin Treasuries, there are now 194 companies with Bitcoin on their balance sheet.
Beyond the rise of copycats, Strategy has faced additional pressure from Bitcoin’s market slide in the past month, from a price record of $126,000 to as low as $89,000 on Tuesday.
While preferred stocks enable Strategy to continue accumulating Bitcoin in the face of such headwinds, the company lacks significant cash flow, which means dividends to old investors would be paid from capital raised from new investors, which raises red flags for some.
The company had nearly $700 million in annual dividend obligations as of Q3.
“We wouldn’t miss a single dividend payment on an 80% drawdown,” Saylor said in Strategy’s Q2 earnings call at the end of July.
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