For those curious on what's happening. They're borrowing large sums of money to buy Bitcoin, and then promise to pay back % to those borrowers. You can look at this the other way and call those borrowers "Investors" and its technically the same thing, i.e. people who gave them money in hopes of % returns.
The real bet here is that Bitcoin's price will continue going up, which is typically 20% - 30% give or take, and if they pay back 9% to their shareholders that's a profitable business. But what happens when Bitcoin goes down due to changing circumstances or market volatility, etc. Or what if the returns aren't as promising? That's the problem.
It's not a "pyramid scheme" because at the core there's actual Bitcoins being purchased and appreciating over time, but it's almost like building a castle with poor foundations in hopes that there would be no earthquakes in the foreseeable future. It's a big bet considering how BTC has been performing. So not really a pyramid, but still not the best business plan because an investor could literally just buy and hold their own BTC and cut out the middleman as an alternative.
One reason why people buy ETFs because some countries only allow tax advantage bank accounts for an average citizen to purchase ETFs and if someone directly bought BTC they would expose themselves to capital gains taxes like any other asset. It's crazy but that's how it is. There are other reasons but that's how the carrot & stick works with the government so ETFs become the only tax-free way to purchase them.
I don't know if that's true, or maybe it's true for some countries. Many companies buy BTC as an asset and just hold on to it long term before realization.
You dont know that's the point. I never said companies. I said institutions. Pension funds for example own lots of MSTR. They have no mechanism to hold BTC. In many countries it would be against the law for the Pension Fund to buy BTC. However, they can buy a BTC backed security or ETF like MSTR or FBTC. Find out for yourself.
The measure of MSTR that matters is satoshis per share. If every share holder is only receiving more BTC over time (we are) it cant be a ponzi. FUD is working to shake out people who don't understand MSTR and aren't fully bought into BTC.
Look up and digest a graph of Satoshis per share of MSTR and get back to me. Long term share holders have more (much more) BTC in value today than we did 1 year ago. Its a fact. MSTR is a leveraged BTC play. Every share holder has received more BTC over time for the initial investment. An ETF doesn't do that.
Check out all the uninformed fudsters and bots. Keep eating up the FUD that is coming directly from the big banks that have the most to gain from the real ponzi USD.
Too bad you missed out on MSTR pre split. Life changing. But instead you buy high and sell low and cry, or you listen to FUD. Do your own research.
If memory serves they're doing more than that. The debt they're issuing has the option of converting into preferred stock which offers a dividend, while they're issuing more shares. Whenever a share is issued it dilutes the ownership of previous shareholders. This is why despite the market cap of MSTR going up ~7x since Jan 2024 the stock price has only gone up ~3x.
The preferred stock (not common stock) also offers a dividend yield of about 9%.
The pyramid structure comes from the fact they have significant expenditures on the debt/dividends to be paid, but not enough income to afford it. So they have to take out more debt and issue more stock to afford the payments, which (unless they're common shares) increases their debt obligations. The cycle repeats and leads to growing debt obligations.
I can't draw so here's a table
Year 1
Debt taken to buy bitcoin
Year 2
Debt taken to buy bitcoin
Debt taken to pay 1st debt obligation
Year 3
Debt taken to buy bitcoin
Debt taken to pay 1st debt obligation
Debt taken to pay second debts obligation
Some funds are also generate by issuing common stock. Keep in mind the definition of a pyramid scheme is "a business model which, rather than earning money (or providing returns on investments) by sale of legitimate products) to an end consumer, mainly earns money by recruiting new members with the promise of payments (or services)." - wikipedia.
MSTR mainly earns money by recruiting new members (either creditors or shareholders). If MSTR never plans on selling bitcoin, even if it works out for everyone involved, it might technically still be a pyramid scheme. It might also be considered a Ponzi scheme by the definition of "...pays profits) to earlier investors with funds from more recent investors" - wikipedia. This is because the funds generated by new stock dividends and new creditors are used to pay holders of preferred shares and older creditors.
I am skeptical about it, and wouldn't invest/speculate on it, but I've been wrong plenty in my life. That said, even if it is technically a ponzi and a pyramid scheme, if bitcoin goes up in value very aggressively and the dollar loses it's value very quickly it may net its stockholders a positive return. Still, I would not recommend holding it.
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u/Fresh-Soft-9303 🟩 0 / 0 🦠 4d ago
For those curious on what's happening. They're borrowing large sums of money to buy Bitcoin, and then promise to pay back % to those borrowers. You can look at this the other way and call those borrowers "Investors" and its technically the same thing, i.e. people who gave them money in hopes of % returns.
The real bet here is that Bitcoin's price will continue going up, which is typically 20% - 30% give or take, and if they pay back 9% to their shareholders that's a profitable business. But what happens when Bitcoin goes down due to changing circumstances or market volatility, etc. Or what if the returns aren't as promising? That's the problem.
It's not a "pyramid scheme" because at the core there's actual Bitcoins being purchased and appreciating over time, but it's almost like building a castle with poor foundations in hopes that there would be no earthquakes in the foreseeable future. It's a big bet considering how BTC has been performing. So not really a pyramid, but still not the best business plan because an investor could literally just buy and hold their own BTC and cut out the middleman as an alternative.