Peter Schiff Predicts Bankruptcy for MicroStrategy

Peter Schiff, President of Euro Pacific Capital and a critic of Bitcoin, described MicroStrategy as a “great short” and predicted its bankruptcy in an interview with Kitco News.

The entrepreneur criticized Michael Saylor’s strategy of large-scale Bitcoin purchases through debt financing.

“If you understand the dynamics of how this works, you realize that it can only end in MicroStrategy’s collapse,” Schiff stated.

According to him, the firm’s obligations to pay large sums to convertible bondholders pose a potential risk if the cryptocurrency price significantly drops.

Bondholders are under the “false impression” that they have invested in Bitcoin without risk of loss and will simply get their money back even in the event of bankruptcy, Schiff noted.

“The problem is that MicroStrategy promises to return so much that it won’t be able to do so if the cryptocurrency price falls, because the company has no money, it spent it on Bitcoins,” said the head of Euro Pacific Capital.

The only way for Saylor’s company to repay its debts would be to liquidate its reserves in digital gold, Schiff believes.

“When the largest seller and owner transforms into the largest buyer, guess what happens to the price? It falls. So, I think it will end in only one way — bankruptcy,” Schiff concluded.

Renowned analyst Willy Woo also pointed out the risk of MicroStrategy’s corporate debt liquidation. The expert noted that if bondholders do not convert them into shares before maturity, the company will be forced to sell Bitcoin to make payments.

Thoughts on MSTR Liquidation Risk:

The only liquidation risk I can see is via their convertible debt offerings:

1) If convertible debt buyers do not convert to shares before maturity, it forces MSTR to sell BTC to reimburse debt holders.

2) This would happen if MSTR doesn’t… pic.twitter.com/GFIOeAqQPL

— Willy Woo (@woonomic) November 27, 2024

Woo estimates this scenario will become a reality if MicroStrategy’s stock does not rise by ~40% in the next five to seven years.

Among additional threats to the company’s Bitcoin strategy, he cited the potential reduction in bond premiums to NAV. This could occur due to the spread of imitator competitors and possible regulatory intervention in future purchases.

Earlier, Bloomberg Opinion columnist Lionel Laurent expressed doubts about the long-term viability of MicroStrategy’s debt policy.

He noted the company’s apparent overvaluation — its stock has risen by ~650% since the beginning of the year, while digital gold has increased by ~120%. For investors considering the firm’s stocks and bonds as “proxy Bitcoin” investments, the offer becomes too expensive.

The expert was concerned about MicroStrategy’s plans to raise $42 billion over three years to continue purchasing the leading cryptocurrency.

However, analysts at Bernstein believe that the company’s “unprecedented” accumulation of digital gold reserves could lead to a further 49% rise in its stock.

NEW: $800 billion Bernstein says MicroStrategy’s ‘unprecedented’ #bitcoin buying could push $MSTR up another 49%.

INSANE ? pic.twitter.com/F3ady2bLGY

— Nikolaus Hoffman (@NikolausHoff) November 28, 2024

Specialists at BitMEX have previously called the liquidation of MicroStrategy’s Bitcoin reserves due to market conditions “extremely unlikely.” They estimate that the asset would need to plummet to $15,000 for this to happen.