MicroStrategy $MSTR Is Going to Crash Hard. Just Like It Did in 2000

Looking at stocks related to BTC and blockchain technology, one stands head and shoulders above the rest: MicroStrategy (NASDAQ: MSTR).

MicroStrategy (NASDAQ:MSTR) stock has been on a tear in recent years, thanks to the company's massive bet on Bitcoin (CRYPTO:BTC). But some are starting to wonder if MSTR stock is heading for the same kind of epic collapse that MicroStrategy did in the Dot Com crash in the early 2000s.

Back then, MicroStrategy CEO Michael Saylor lost $60 billion in one day and was dubbed the biggest loser in the Dot-Com bubble. He also paid the SEC $8.2 million in disgorgement and a $350k civil penalty as part of a settlement related to accusations of fraudulently overstating the company's earnings and revenues.

Now, Saylor is once again at the center of a financial storm, but this time he's betting on Bitcoin and not overstating earnings. However, the risks are still high, and if MicroStrategy's bet on BTC goes south, the effects could be felt throughout the financial system.

Here's a closer look at what Saylor is doing and why it could be so risky.

MicroStrategy's massive bet on Bitcoin

In 2020, MicroStrategy began purchasing large amounts of Bitcoin, eventually totaling over 130,000 BTC. The company used a combination of cash on hand and proceeds from low-interest convertible notes to fund the purchases.

The goal of the purchases was to generate a return on MicroStrategy's capital and to hedge against inflation. Saylor has also expressed his belief that Bitcoin is a superior store of value to fiat currencies and that it will continue to appreciate over time.

So far, MicroStrategy's bet on Bitcoin has paid off handsomely. The price of BTC has soared in recent years, and MicroStrategy's stock price has followed suit. In 2023, MSTR stock is up over 200% year-to-date.

But some are starting to wonder if the rally is sustainable. After all, Bitcoin is a notoriously volatile asset, and it's already had a huge run-up in price. If the price of BTC were to decline sharply, MicroStrategy's stock price would likely follow suit.

The risks of MicroStrategy's strategy

In addition to the risk of a decline in the price of Bitcoin, there are other risks associated with MicroStrategy's strategy.

For example, MicroStrategy is taking on a lot of debt to finance its purchases of BTC. If the price of BTC were to decline and MicroStrategy were to experience a loss on its investment, the company could be left with a large amount of debt and a diminished ability to repay it.

Another risk is that MicroStrategy's strategy could put the company at odds with regulators. For example, the SEC has already expressed concerns about the company's accounting practices related to its BTC holdings. If the SEC were to take further action against MicroStrategy, it could impact the company's ability to continue its current strategy.

Overall, MicroStrategy's strategy is a risky one, but it has the potential to pay off handsomely. If the price of Bitcoin continues to rise and MicroStrategy is able to sell its BTC at a profit, the company could generate a substantial return on its capital. However, if the price of BTC were to decline or if MicroStrategy experiences other setbacks, the company could be left with a large amount of debt and a diminished ability to repay it.