MicroStrategy announced a $22 million Bitcoin purchase today, highlighting growing fears of shareholder dilution. The firm has refused to reinstate guardrails that could prevent this.
MicroStrategy is caught between two bearish scenarios. If it stops buying BTC, it could collapse market confidence. However, if it dilutes shareholders to fund these buys, the firm will continue underperforming the asset it holds.
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MicroStrategy’s Dilution Crisis
MicroStrategy has earned a lot of success with its Bitcoin accumulation plan, but a few cracks have been forming in recent weeks. Recently, the firm’s purchase size has been diminishing, with Chairman Michael Saylor announcing a $22 million BTC acquisition today:
Compared to some of its previous buys, this sum is downright paltry. Moreover, new reports help explain an urgent dilemma for MicroStrategy: the firm is increasingly leaning on shareholder dilution to fund these buys.
This pattern could bubble into an explosive crisis if it diminishes shareholder confidence.
Dangerous Warning Signs
Although Michael Saylor claimed in July that MicroStrategy would not dilute shareholders’ Bitcoin exposure, he took measures to change this policy last month.
Specifically, he announced that the firm might sell stock for new reasons other than buying BTC, and also removed guardrails to protect investors’ positions.
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Since MicroStrategy enacted these measures, the firm diluted common shareholders by 3,278,660 shares to fund over $1.1 billion in new Bitcoin purchases. This 1.2% of shareholder float therefore directly funded around 94% of the company’s BTC acquisitions in the last month.
MicroStrategy’s stock dilution is dangerous for a few reasons, but one is particularly critical: it directly undermines the motivation to invest in MSTR instead of buying BTC. Although the firm purchased around 10,000 bitcoins since August, it has significantly underperformed the token.
No Clear Way Out
Even though the company recently avoided a class-action lawsuit, this is a giant warning sign. MicroStrategy’s inconsistent earnings have already cost it huge accolades, and shareholder dilution could be even worse.
The firm has a fiduciary responsibility to maximize shareholder value, which may be in conflict with its acquisition goals.
Much like the Red Queen from Alice in Wonderland, a BTC digital asset treasury has to keep running faster and faster to stay in the same place. MicroStrategy is a pillar of corporate confidence in Bitcoin; if it stops buying, the token price will drop, dilution be damned.
There isn’t an easy way out of this crisis. Michael Saylor doesn’t have to only keep making money; he has to outperform Bitcoin. Shareholder dilution might be the only way to keep MicroStrategy on top for now. Nonetheless, it could trigger an even bigger implosion.
