Peter Schiff, president of Euro Pacific Capital and a well-known Bitcoin critic, labeled MicroStrategy as an “excellent short play” and predicted its bankruptcy in an interview with Kitco News.

Schiff criticized the company’s strategy of heavily investing in Bitcoin using debt financing.

“If you understand the dynamics of how this works, you’ll see this can only end with MicroStrategy’s collapse,” Schiff stated.

He emphasized that the firm’s obligation to repay convertible bondholders substantial sums could become a significant risk if Bitcoin experiences a sharp downturn.

Schiff argued that bondholders are under a “false impression” that they have invested in Bitcoin without risk and will get their money back even if MicroStrategy goes bankrupt.

“The problem is that MicroStrategy has promised to repay so much that it won’t be able to do so if Bitcoin’s price collapses. The company has no cash; it spent it all on Bitcoin,” said Schiff.

The only way for the firm to pay its debts, he believes, would be to liquidate its Bitcoin reserves.

“When the largest buyer becomes the largest seller, guess what happens to the price? It falls. I think this will only end one way — bankruptcy,” Schiff concluded.

Prominent analyst Willy Woo echoed the risk of MicroStrategy’s corporate debt liquidation. Woo pointed out that if bondholders don’t convert their bonds into equity before maturity, the company may have to sell Bitcoin to meet its obligations.

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 estimated that this scenario would materialize if MicroStrategy’s stock price doesn’t increase by approximately 40% within the next five to seven years.

Woo also identified a potential decline in the bond premium over NAV as an additional risk to the company’s Bitcoin strategy. He attributed this to increasing competition from imitators and possible regulatory intervention in future Bitcoin acquisitions.

Bloomberg Opinion columnist Lionel Laurent previously questioned the sustainability of MicroStrategy’s debt-driven strategy over the long term. Laurent highlighted the company’s apparent overvaluation, noting that its stock price has surged ~650% this year, compared to Bitcoin’s ~120% rise. He warned that the firm’s plans to raise $42 billion over the next three years to continue buying Bitcoin could be overly ambitious.

However, analysts at Bernstein argued that MicroStrategy’s “unprecedented” accumulation of Bitcoin reserves could lead to a 49% increase in its stock price.

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

Meanwhile, BitMEX experts deemed the likelihood of MicroStrategy liquidating its Bitcoin holdings due to market conditions “extremely unlikely.” They estimated that Bitcoin would need to plummet to $15,000 for such a scenario to occur.