How Did MicroStrategy Bet on Bitcoin to Turn Things Around?
Michael Saylor’s company has not launched any popular products or services. What he and MicroStrategy have done is issue new shares and bonds at an unprecedented speed in corporate history, then invest all the funds into Bitcoin, vowing to repeat this process time and again.
Over the past year, MicroStrategy’s stock price has risen by approximately 690%. The 59-year-old executive chairman holds about 10% of the company’s shares, valued at around $9.7 billion, in addition to personally owning about $1.9 billion worth of Bitcoin.
Saylor has become a public figure representing the recent Bitcoin craze, boasting nearly 4 million followers on the X platform (formerly Twitter). To celebrate Bitcoin’s price surpassing $100,000, Saylor hosted a New Year’s Eve party at his luxurious waterfront mansion in Miami, inviting hundreds of members from the cryptocurrency community, with his lavish yacht docked nearby.
At the party, six dancers dressed in gold outfits performed gracefully. Celebrities from various fields and investment luminaries gathered together, including former Legg Mason fund manager Bill Miller, Fortress Investment Group chairman Peter Briger, and key portfolio manager Mark Casey from Capital Group.
The event was live-streamed on YouTube to tens of thousands of Bitcoin enthusiasts, with Saylor hosting the party in a black suit jacket and a Bitcoin-themed T-shirt.
The enthusiasm for Saylor’s company has been so intense that it has led to a perplexing situation: MicroStrategy holds approximately $47 billion in Bitcoin, yet its stock market value has reached $97 billion. It’s as if investors are spending $2 to buy a $1 bill.
Equally surprising is that seasoned investors are among the largest buyers, including the powerful mutual fund company Capital Group, which held about 8% of MicroStrategy’s shares as of September 30, along with Norway’s sovereign wealth fund Norges Bank Investment Management, which holds nearly 1% of the shares while managing $15 trillion in assets.
Supporters have indicated that this premium reflects their belief in Saylor’s ability to continue profiting through his Bitcoin bets. They argue that the total supply of Bitcoin is capped at 21 million coins, and this scarcity will enhance its value.
Richard Byworth, a partner at SYZ Capital who personally holds MicroStrategy stock, stated that Saylor is able to create value for shareholders by issuing stock at high prices and selling bonds to the company under favorable terms while expanding MicroStrategy’s Bitcoin reserves.
“This premium is justified and will likely persist,” said Jordi Visser, a seasoned Wall Street professional who previously worked at Morgan Stanley and recently bought shares in MicroStrategy. “No other company can do what he does. They own about 2% of the Bitcoin supply; who else can have more?”
What Exactly is Michael Saylor’s Background?
However, Saylor’s strategy also carries immense risks. He has experienced the highs and lows of investment waves, only to see them collapse after reaching a peak, at times losing billions of dollars in personal wealth in a single day.
Saylor declined to comment for this article.
Saylor is unmarried and will turn 60 next month. He has faced setbacks throughout his career and has clashed with financial regulators. Last year, he agreed to pay $40 million to settle a tax dispute with Washington D.C. officials, who claimed he actually resided in the D.C. area rather than in Florida or Virginia as he asserted, thus he should pay taxes to D.C.
Saylor’s father was a career Air Force officer. He studied aeronautics and science at the Massachusetts Institute of Technology and participated in Air Force Reserve Officer Training. A few years after graduating, in 1989, he co-founded MicroStrategy in Tysons Corner, Virginia, initially as a data mining software company.
During the dot-com bubble in the late 1990s, MicroStrategy rapidly ascended. The value of Saylor’s stock reached around $10 billion, which was enough for him to host lavish parties for employees and others, as well as organize Caribbean cruises.
MicroStrategy also acquired domain names, including Mike.com, Michael.com, Hope.com, and Voice.com, selling Voice.com for $30 million.
But everything collapsed when the dot-com bubble burst in 2000. As regulators scrutinized the industry’s revenue recognition practices, MicroStrategy was forced to restate its revenues and earnings.
This dramatic failure even drew tabloid attention: in March of that year, the New York Daily News published a headline reading “Lost $6 Billion in a Day,” accompanied by a photo of the then 35-year-old Saylor, looking sharp in a suit and tie, with a bewildered expression on his face.
Saylor has been a public figure for Bitcoin; the above image shows him speaking at a conference in 2023.
Later that same year, Saylor, along with two other senior executives and the company, paid $11 million to settle accounting fraud charges brought by the U.S. Securities and Exchange Commission (SEC) over financial restatements. The SEC stated that the company had inflated its revenues and earnings, showing profits instead of losses, but Saylor and others neither admitted nor denied the allegations.
By July 2002, MicroStrategy’s stock closed at 45 cents, a significant drop from its high of $313 in 2000, and the company was facing debt issues.
During a lunch at a villa in Bridgehampton, New York, venture capitalist Rick Rickertsen expressed sympathy to Saylor and asked if he was worried about losing his company.
“Possibly,” Saylor replied, “but I would start over.”
Saylor restructured MicroStrategy’s debt and implemented a 10-for-1 reverse stock split, thereby averting the crisis. For years, Saylor sought the next major opportunity.
For a time, he achieved significant personal gains by investing in stocks like Google and Apple, but he dismissed Bitcoin, stating on Twitter in 2013 that Bitcoin “has no future.”
By 2020, MicroStrategy’s stock price had seen little movement for years, with bleak growth prospects. The company’s market value was only $1.5 billion, although it was still profitable and had around $500 million in cash.
From “Has No Future” to Bitcoin Supporter
During the COVID-19 pandemic in 2020, Saylor pondered how to manage the company’s cash from his home in Miami. Concerned that the government’s massive spending to stabilize the economy could lead to inflation, Saylor revisited Bitcoin and became a staunch supporter.
He quickly proposed to the board that the company use its cash to purchase Bitcoin, and the board agreed, primarily because the company seemed to have no better options. They believed that at least this move could attract some beneficial attention.
“The company was making no progress and had almost no attention from Wall Street at the time,” Rickertsen said, who later became a board member. “The outlook was bleak.”
That year, Saylor allocated half of the company’s cash, approximately $250 million, to buy Bitcoin at around $11,000 each. He personally invested over $100 million. However, the price of Bitcoin subsequently dropped to $9,000, resulting in a paper loss of about $40 million for MicroStrategy.
“Most of the board members were saying, ‘Oh my God, what have we done? We’re going to get sued,'” Rickertsen said. “Saylor was worried too.”
This panic did not last long. The price of Bitcoin began to rise, surpassing $26,000 by the end of 2020. MicroStrategy borrowed billions to purchase more Bitcoin, including a floating-rate loan of $205 million at an interest rate of 8.27%, which was considered quite challenging at the time.
Then, at the end of 2022, the collapse of the cryptocurrency exchange FTX caused Bitcoin prices to fall below $17,000, while MicroStrategy’s stock price also dropped to around $17. The company’s Bitcoin was acquired at an average cost of about $30,000, leading to paper losses. Rumors circulated that the company was in trouble. Yet, Saylor and the company doubled down.
As Saylor intensified his strategy of buying Bitcoin through stock and bond sales, and Bitcoin prices continued to rise, the company’s stock price began to soar. According to Mark Palmer, an analyst at investment bank Benchmark Company, MicroStrategy raised $23.2 billion through stock and bond sales alone in 2024.
Saylor’s promotional rhetoric may be somewhat repetitive and simplistic, but his conviction about Bitcoin remains steadfast. He emphasizes that Bitcoin’s supply is limited, which distinguishes it from both the dollar and even gold. Saylor believes this makes Bitcoin superior in terms of inflation resistance. He also argues that Bitcoin’s digital nature allows holders to store and use it more conveniently and at lower costs, without the need for intermediaries, making it a “revolutionary” form of currency.
Some mutual funds and other institutions have internal regulations prohibiting the purchase of Bitcoin and Bitcoin ETFs, thus making MicroStrategy’s stock an indirect way for them to bet on Bitcoin. Even some large conservative investors see the stock as a potential means to gain an advantage over competitors unwilling to venture into cryptocurrency.
It turns out that Saylor excels at creating various types of equity and debt investment products, such as bank loans, convertible bonds, and common stock, to ensure a steady influx of capital.
“His strength lies in creating different products for different audiences,” said Brett Messing, a senior executive at SkyBridge Capital, a company that manages a fund heavily invested in Bitcoin and provides advisory services for a fund holding MicroStrategy stock.
Over the past month or so, Saylor has aggressively promoted MicroStrategy and Bitcoin on television, popular podcasts, industry conferences, and other venues. “If you don’t buy Bitcoin at the highs, you are missing out on a profit opportunity,” he recently tweeted.
“He is passionate in public and more nuanced in private,” said Matt Hougan, chief investment officer at cryptocurrency asset management firm Bitwise, who heard Saylor speak at a dinner attended by 12 investors last summer. His firm manages an ETF that holds MicroStrategy stock.
If Bitcoin prices continue to rise, the premium for holding MicroStrategy stock may persist. However, if Bitcoin prices plummet, MicroStrategy’s stock price could also decline. Even if the premium disappears, as long as Bitcoin prices remain stable, its stock price may still be affected. Skeptics point out that some similar investment vehicles, such as closed-end funds, often trade at prices lower than the value of their underlying assets rather than at a premium.
However, the company may not face a survival crisis. MicroStrategy currently has $7.26 billion in unsecured debt, most of which was issued at very low interest rates. The company holds 450,000 Bitcoins with an average cost of around $62,000. It is only when Bitcoin prices drop below $16,000 and remain around that level at the time of debt maturity that the value of the Bitcoins held by the company would fall below its debt.
Just over a week ago, Saylor announced a brand new way for MicroStrategy to raise funds from investors to support its Bitcoin purchasing plans. He announced that the company would sell $2 billion in “perpetual preferred stock” this quarter. This news prompted analyst Palmer to reaffirm his target price of $650 for MicroStrategy stock, which is about 65% higher than the current stock price.
This article is collaboratively republished from: Deep Tide.