Over the past few days, investors have been re-engaging with the most simple criticism of Michael Saylor’s massive bitcoin treasury company, MicroStrategy (MSTR). On Reddit, YouTube, Nostr, and X, fans and skeptics are fighting over whether MicroStrategy is a Ponzi scheme.
Andy Constan triggered the latest round of this multi-year debate when he earned hundreds of thousands of views across various claims that MSTR is “mostly a Ponzi scheme.”
Within a day of his most popular post on the topic, Lyn Alden started to engage in a threaded debate. Their disagreements eventually left X and continued with a verbal debate.
By August 11, Constan and Alden had appeared on Danny Knowles’ What Bitcoin Did podcast. For over an hour, the duo debated the rational pricing for MicroStrategy stock and whether MicroStrategy could service perpetual dividend payouts without raising capital.
Their debate merely fueled more weeks of escalating tensions that reached a fevered pitch this weekend.
Lyn Alden challenges Andy Constan’s claim of a Ponzi scheme
In particular, Constan called out MicroStrategy’s use of the word “earnings” and earnings multiples to describe the company’s capital appreciation from holding bitcoin (BTC).
Constan did not mince words, calling executives’ use of that word “completely, 100% fraudulent.” He decried executives’ invocation of price-to-earnings (P/E) multiples or P/E comparisons to other companies with non-appreciation-based, traditional, recurring earnings.
Alden responded, “I agree the comparison [of bitcoin appreciation to earnings] is not valid. I wouldn’t go so far as to say fraudulent.”
After that episode aired, social media users shared clips and quotes, further spreading and inflaming the debate.
By yesterday, Choose Rich Nick clowned another viral iteration of this debate, earning over 600,000 impressions for predicting MicroStrategy will become “the largest Ponzi of all time.” Tens of thousands of additional quote-tweet views amplified the controversy.
One quote-tweet asked the Irresponsibly Long MSTR community whether Saylor could sue Nick for slander.
The essence of the debate is whether the company’s plan to pay preferred shareholders’ dividends with the proceeds of subsequent capital raises satisfies the definition of a Ponzi scheme.
Indeed, MicroStrategy has many series of perpetual preferred shares whose dividends are payable in USD—as their name suggests—in perpetuity.
Read more: Is MicroStrategy the bitcoin bank Hal Finney dreamed of?
The definition of a Ponzi scheme
According to Constan’s simplistic characterization of a Ponzi scheme, MSTR is a Ponzi scheme because funding dividends with share issuance meets the definition of a Ponzi scheme, and executives perpetuate the scheme by redefining BTC capital gains as though they are traditional terms like “net income” or “earnings.”
“The reason why original Ponzi investors are outperforming is because of the investors that have come after,” reiterated Constan.
Of course, thousands of people disagree with that characterization. For example, Alden recited a list of SEC red flags that MicroStrategy does not exhibit, such as lack of public disclosure (MicroStrategy religiously files full public disclosures with the SEC), unregistered securities (MSTR is fully registered), promises of no risk (MicroStrategy prominently discloses investment risks in its prospectuses), overly consistent yield (MicroStrategy has varied its pricing terms to reflect market conditions), or difficulty receiving payment (MicroStrategy has paid all dividends on time).
In Alden’s and thousands of other investors’ view, MSTR is not a Ponzi scheme. Nevertheless, the debate continues online.