What Happens When an 'Infinite-Money Machine' Unravels

Michael Saylor's software company Strategy, formerly known as MicroStrategy, built a financial model that some observers called an 'infinite-money machine' by stockpiling hundreds of thousands of bitcoins and issuing stock and debt to buy more, but that machine appears to be breaking down. The company's stock peaked above $450 in mid-July and ended November at $177.18, a 60% decline. Bitcoin fell only 25% over the same period. The gap between Strategy's market cap and the value of its bitcoin holdings has nearly vanished.

At one point last week, the company's market value dipped below the value of its bitcoins after accounting for debt. Strategy announced it had built a $1.4 billion dollar reserve by selling more stock to cover required dividend payments to preferred shareholders over the next twelve months. The company also disclosed it might sell some of its coins if its value continues to fall, a reversal from Saylor's February tweet declaring 'Never sell your Bitcoin.' Professional short seller Jim Chanos, who had questioned the strategy's sustainability, told Sherwood he made money by shorting the stock and buying bitcoins.

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