According to the company’s founder, Michael Saylor, Strategy
plans to reduce the debt on its balance sheet over the coming years by converting about $6 billion worth of convertible notes into equity.
This is excellent, the debt is one risk and the dividend payouts another. They need to strategize now to get rid of both eventually and then this ride is going to be a risk free operation. I am sure though that even in that case the reasonable critics as they call themselves are going to come up with new FUD.
Almost 200 of them.., I agree, this is were the real stress test lies. Many of these firms are not operating businesses with strong cash flow, they are struggling companies attempting financial engineering. If we unfortunately enter a multi-year bear market and several of them are forced to sell BTC to service obligations, that would definitely challenge the narrative that the BTC treasury model is universally viable.
It is viable if done right, and it is not viable if done wrong. It is as simple as that. If you enter into this proposition with a very high risk position, then the model is not to blame it is your own execution that is to blame. Depending on who is doing these things and why we will see big differences in how the treasury model is executed. But someone who is reasonable and actually believes in Bitcoin long term wouldn't take up a high risk position that would collapse during a bear market. That would be financially illiterate.
The real question is nott whether some treasury companies will fail, because statistically, many will. The question is whether the capital structure of the largest players creates systemic selling pressure during downturns. In short, I think we are heading toward differentiation, not total collapse. Weak balance sheets will break. Strong ones may consolidate. That process would refine the treasury model rather than disprove it outrightly.
We are in agreement on that point. I think that way too many players rushed into this, and we have an immature market with a radically different asset. Mistakes of all sorts are bound to happen, some due to inexperience, others due to malice, and some due to the novelty of this. Anyway in the end a company can build a treasury model as a risk-free enterprise if it wants to go the completely safe route. There is no need to dilute anything or take any debt at all, just convert some of the profits into investment. DCA but as a company.
There is no institutional investor that is too big to be free from collapse especially if they are leveraging higher and higher with time.
Interesting to state this because the banks did exactly the same thing, extremely over-leveraged themselves and then the government deemed them to be too big to collapse and bailed everyone out.
In this regard, I believe Strategy has an advantage over the rest. It has structured its debt in such a way that it can withstand harsh bear markets, and as the first and largest holder of Bitcoins, it will have the easiest access to liquidity in difficult times.
They do and time is on their side, the more large institutional players get involved with Strategy the more there are interests for this venture to succeed.
Which highlights the main problem of his system. He buys a lot when the market is overheated but little to nothing when it is bearish.
He is doing exactly what he publicly said a long time that he would do.
