MicroStrategy’s unique strategy poses meaningful risks to the BTC exchange rate

MicroStrategy has caught the attention of the financial world with its unconventional bitcoin (BTC)-based strategy. The company uses a mechanism known as “Davis’ Double Play” to link BTC price growth to its own profitability. This approach has allowed the organization to achieve significant capitalization growth, but it also carries serious risks. The “Davis Double Play” principle, first described by investor Clifford Davis, explains the accelerated growth in share price by increasing a company’s earnings and expanding market valuation. In MicroStrategy’s case, the increase in bitcoin prices directly affects capitalization, which creates a “positive premium” between the company’s market value and the price of its BTC assets. This allows the institution to issue new securities or debt instruments to buy even more digital coins, maintaining the growth cycle. However, the MicroStrategy model is also vulnerable to the “Davis Double Whammy” mechanism, which occurs when profits decline and market valuation simultaneously declines. If BTC price growth slows, the company’s earnings will begin to fall, negatively impacting expectations and funding opportunities. This could lead to a reduction in the “positive premium” that has been the foundation of the business model. What

makes MicroStrategy special is the transparency of its financial results: BTC prices are public and the company’s earnings are actually calculated in real time. This makes the securities particularly susceptible to volatility. In addition, the participation of large institutional investors such as BlackRock in the business creates additional pressure on the company’s management.

If the situation with BTC becomes unstable, MicroStrategy may start selling off bitcoin reserves to support the share price. Such a scenario would only exacerbate the decline in BTC’s value, creating a domino effect for the entire industry. This process is known as the “Davis Double Strike” and could result in significant losses for the company and its shareholders.