Why MicroStrategy’s Bitcoin Flywheel is Stalling: A Warning for Crypto Stock Investors
One of the most polarizing topics in the recent U.S. stock market has been the aggressive “Bitcoin-first” financial strategy led by MicroStrategy (MSTR).
The Breakdown of the MSTR Flywheel For years, MicroStrategy utilized a strategy that many called an “infinite money-printing” scheme: issuing stock to buy Bitcoin, then leveraging the rising stock price to issue even more equity and buy even more Bitcoin.
Investors were captivated by this seemingly virtuous cycle, often paying a significant premium for MSTR shares. However, cracks are finally beginning to appear in this “eternal” spell.
Today, we delve into why this “infinite engine” has stalled and the painful lessons it holds for the market.
✅ How the “Infinite Money Glitch” Operated
The core of this strategy was remarkably simple.
A company with lackluster or mediocre core business would capture market attention by declaring, “We will buy and hold Bitcoin.” The subsequent process followed a flywheel structure:
[Crypto Financial Strategy]
- Stock Issuance and Capital Raising
: Issues stock based on high share prices or issues low-interest convertible bonds. - Bitcoin Purchase
: Uses raised cash to massively accumulate Bitcoin. - Stock Price Rise
: As Bitcoin prices rise, the company’s value increases. The appeal of being a ‘Bitcoin substitute asset’ is highlighted, causing the stock price to surge even more than Bitcoin’s rise. - Repeat
: Use the higher stock price to raise even more capital.
Throughout this process, traditional metrics like free cash flow or price-to-earnings ratio (PER) were ignored. Only ‘Bitcoin holdings’ and ‘stock price premium’ mattered.
✅ The Illusion of Risk-Free Leverage
Why did investors pay a 100% premium for MSTR instead of buying Bitcoin directly?
⚡ The biggest reason was the effect of ‘leverage without margin calls’.
While using leverage on crypto exchanges risks forced liquidation during price drops, there was a belief that stocks could withstand even severe crashes.
Additionally, the company could issue convertible bonds at low or zero interest rates by leveraging volatility.
Hedge funds weren’t lending money because they believed in the company’s future; they were willing to lend because they could profit through ‘gamma trading’ exploiting high volatility.
However, this entire structure relied on one fragile variable: The Premium.
✅ Why the Flywheel Has Stalled?
Recently, MicroStrategy began issuing shares not to buy Bitcoin, but to secure ‘cash’. This is a highly symbolic event.
| Category | Past Strategy | Current Situation |
| Funding Purpose | Additional Bitcoin Purchases | Preferred Stock Dividends & Debt Interest Payments |
| Primary Asset | Bitcoin (Digital Gold) | USD (Building Cash Reserves) |
| Market Reaction | Premium Expansion | Premium contraction (financial gravity) |
| Risk Factors | Bitcoin decline | Fixed costs incurred even during Bitcoin sideways movement |
⚡ The company must now service 8-10% dividends on preferred shares. If Bitcoin remains stagnant, MSTR is forced to dilute shareholders just to stay afloat.
Critics now argue this looks less like a “money glitch” and more like a “Ponzi-style” dependency on new capital.
✅ Narrative Exhaustion: The End of the Road
The powerful drivers that fueled Bitcoin’s past rallies have all become reality.
- Spot ETF Approval Complete
- Pro-crypto US administration inaugurated
- Institutional financial firms (BlackRock, etc.) entered the market
Paradoxically, once all the ‘forbidden fruits’ hit the market, new scenarios to fuel anticipation vanished. Bitcoin now remains a purely speculative asset, and companies leveraging it for financial strategies face the harsh logic of capital (interest costs, cash flow).
Insight
⚡ Leverage is a double-edged sword.
Leverage works like magic only when asset prices rise; when prices fall, it becomes a dangerous blade.
Key Takeaways for Investors
- Leverage is a Double-Edged Sword: It creates magic on the way up but becomes a guillotine on the way down.
- Direct vs. Derivative: If you want Bitcoin exposure, buying Bitcoin directly remains the safest path.
- Watch the Premium: Assets trading far above their Net Asset Value (NAV) are prone to violent corrections.
The “magic” of infinite money does not exist. Only disciplined analysis and risk management will protect your capital in this new era.
This has been Michael from WStorybook. Thanks for reading!
