Peter Schiff Calls MicroStrategy A 'Great Short' And Issues A Grim Warning: 'It Can Only End In Bankruptcy'

Aniket Verma

November 28, 2024

Influential economist and market strategist Peter Schiff said shorting MicroStrategy Inc.’s (NASDAQ:MSTR) stock was a good idea, as he predicted potential bankruptcy for the company.

What Happened: During an interview with Kitco News that aired Thursday, Schiff called MicroStrategy a “great short” if one’s got the staying power, though he denied himself taking such a position.

“If you understand the dynamics of how this works, I mean you see that it can only end in the bankruptcy of MicroStrategy,” the Bitcoin critic made a bold prediction.

Making his argument, Schiff said that the company’s commitment to repay a large sum of money to convertible note holders could be a potential risk if the price of Bitcoin (CRYPTO: BTC), the asset it holds on its books, drops.

See Also: Bitcoin ‘Supercycle’ Narrative Is A ‘Collective Delusion,’ Influential Crypto Venture Capitalist Says

He stated that the bondholders are under the “false belief” that they have exposure to Bitcoin with no downside risk and would simply receive their money back in the worst-case situation of bankruptcy.

“Well, the problem is MicroStrategy is promising to pay so many people back so much money that it won’t be able to do it if the price of Bitcoin goes down because it doesn’t have the money because it wasted it on Bitcoin,” Schiff said.

He predicted that the only way to repay the debt would be by selling Bitcoin.

“But as the biggest buyer and biggest owner, if it becomes the biggest seller, what happens to the price of Bitcoin? It crashes. So I think the only way this is going to end is in bankruptcy,” Schiff emphasized.

Why It Matters: Schiff’s remarks come in the wake of recent concerns raised about MicroStrategy and its Bitcoin investment strategy.

Cryptocurrency analyst Willy Woo had previously flagged the potential liquidation risk of MicroStrategy due to its convertible debt offerings. He said that if the buyers of the convertible debt do not convert to shares before maturity, MicroStrategy would be forced to sell Bitcoin to repay the debt holders.

Additionally, investment adviser Gary Black questioned MicroStrategy’s valuation, suggesting that the company’s stock was significantly overpriced.

MicroStrategy's aggressive Bitcoin acquisition strategy has been the subject of intense media coverage in recent weeks. Last week, it outshone major companies on Wall Street to emerge as the second-most traded stock on a trading day.

Price Action: Since the beginning of November, MicroStrategy's stock has surged 69%. The company’s shares closed 9.94% higher at $388.84 on Wednesday.

Photo Courtesy: Wikimedia Commons

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