Gold has returned north of 25% over the past couple of years, so I am thinking of starting a company called GoldStrategy. I will issue shares (GSTR) and use the money raised by these shares to buy gold. I won't do anything with the gold, I just plan to hold it indefinitely while it appreciates in value. My investors will thus own this gold indirectly through owning shares of GSTR.
To buy additional gold, I will then issue preferred shares called StrikeGold (STKG), which will pay an annual 10% dividend. Since my gold does not actually generate any USD yield, the money to pay the STKG dividend will have to come from issuing additional STKG shares, or by issuing common shares of GSTR. As long as gold continues to appreciate in price, I should be able to continue attracting investors to buy my GSTR and STKG shares, allowing me to keep buying more and more gold, which itself is continually appreciating in value. This is known as the "infinite money glitch", although critics are quick to label it a Ponzi scheme.
The only risk with my plan will be if investors decide they are no longer interested in buying my GSTR shares. This might occur if the price of gold stops increasing for awhile. If I am unable to issue new shares of GSTR, I will be forced to issue new preferred shares, these with an even more attractive dividend yield. I will call these UltraGold (ULTG) and they will carry an astonishing 25% dividend. Of course, I will have no way of paying this dividend except by using the money I received from selling the original shares. In other words, I will sell a share of ULTG for $100, then use $10 of it to pay my STRKG dividend, and $25 to pay my ULTG dividend. I'm then left with $65 to buy more gold. Then when next year rolls around, I have to come up with another $35 to pay my dividends, so I have to sell more shares, incurring more dividend obligations and/or diluting my GSTR shareholders. Eventually, I will get myself in real trouble by having more obligations than I can pay. I will then be forced to liquidate all of my gold on the open market. And since I own more gold than anyone on the planet, the price of gold will tank.
Everything I wrote above exactly describes Strategy, except with gold in place of Bitcoin. The company is a Ponzi scheme and a ticking time bomb, and as chance vought himself admitted, anyone who understands and believes in Bitcoin would rather just own Bitcoin directly anyway. Michael Saylor rolled the dice on Bitcoin as a last resort to save his flailing SaaS company, and it's kept them afloat thus far. But eventually the music is going to stop for Strategy, and the fallout will be brutal for its shareholders, including the preferred shareholders (which, by the way, anyone considering buying STRC or their other preferreds should be aware that those dividends are completely discretionary and can be cancelled by management at any time, an eventuality that would tank the stock price. These are NOT risk-free products on the level of a money market account - which is what they are misleadingly being sold as - and could implode in price very quickly if investors lose confidence in Strategy. Caveat emptor to the max with this company.
