How MicroStrategy Bets Big on Bitcoin to Turn Around Its Fortune
Michael Saylor’s company has not launched any popular products or services. What he and MicroStrategy have done is issue new stocks and bonds at a pace rarely seen in corporate history, then invest all the proceeds into Bitcoin, vowing to do so repeatedly.
Over the past year, MicroStrategy’s stock price has increased 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 holding approximately $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 waterfront mansion in Miami, inviting hundreds of cryptocurrency community members, with his luxurious yacht docked nearby.
At the party, six dancers dressed in gold costumes performed. A host of celebrities and investment luminaries gathered, 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 donning a black suit jacket over a Bitcoin-themed T-shirt to host the gathering.
The enthusiasm for Saylor’s company is so high that a perplexing situation has arisen: MicroStrategy holds approximately $47 billion worth of Bitcoin, yet its stock market value has reached $97 billion. It’s as if investors are paying $2 for 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. Additionally, the Norwegian sovereign wealth fund, Norges Bank Investment Management, which manages $15 trillion in assets, holds nearly 1% of MicroStrategy’s shares.
Fans assert that this premium reflects their belief that Saylor can continue to profit through his Bitcoin bets. They believe that Bitcoin’s total supply is limited to 21 million coins, and this scarcity will enhance its value.
Richard Byworth, a partner at SYZ Capital, personally holds MicroStrategy stock and stated that Saylor has created value for shareholders while expanding MicroStrategy’s Bitcoin reserves by issuing shares at high prices and selling bonds on favorable terms.
“This premium is justified and will persist,” said Jordi Visser, a veteran on Wall Street who previously worked at Morgan Stanley and recently bought shares of MicroStrategy, “No other company can do what he has done. They hold about 2% of the Bitcoin supply; who else can hold more?”
What is Michael Saylor’s Background?
However, Saylor’s strategy comes with significant risks. He has experienced the highs and lows of investment waves, sometimes losing billions of dollars in personal wealth in a single day when those waves peak and then crash.
Saylor declined to comment for this article.
Saylor, who has never married, will turn 60 next month. He has faced setbacks throughout his career and has had conflicts 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 D.C. rather than Florida or Virginia as he had asserted, and thus owed 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 the Air Force Reserve Officer Training Corps. A few years after graduating, in 1989, he co-founded MicroStrategy in Tysons Corner, Virginia, initially as a data mining software company.
During the late 1990s dot-com bubble, MicroStrategy rapidly ascended. Saylor’s stock was valued at around $10 billion, enough for him to host lavish parties for employees and others, as well as organize Caribbean cruises.
MicroStrategy also purchased domain names, including Mike.com, Michael.com, Hope.com, and Voice.com, the latter of which was sold for $30 million.
But everything collapsed with the 2000 dot-com bust. As regulators scrutinized the industry’s revenue recognition practices, MicroStrategy was forced to restate its revenues and earnings.
The dramatic failure even caught the attention of tabloids: in March of that year, the New York Daily News ran a story titled “Lost $6 Billion in a Day,” featuring a picture of the then 35-year-old Saylor, looking sharp in a suit and tie, with a bewildered expression.
Saylor has been a public figure for Bitcoin; the above photo shows him speaking at a conference in 2023.
Later that same year, Saylor and two other executives, along with the company, paid $11 million to settle accounting fraud charges brought by the U.S. Securities and Exchange Commission (SEC) regarding financial restatements. The SEC alleged the company overstated its revenues and earnings, showing profits instead of losses, although Saylor and others neither admitted nor denied the allegations.
By July 2002, MicroStrategy’s stock closed at 45 cents, a dramatic decline from its peak of $313 in 2000, and the company faced debt issues.
While having 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.
“That could happen,” Saylor replied, “but I would start over.”
Saylor restructured MicroStrategy’s debt and implemented a 10-for-1 reverse stock split, thus avoiding a crisis. For years, Saylor searched for the next big opportunity.
For a time, he profited personally by investing in stocks like Google and Apple but dismissed Bitcoin, famously stating on Twitter in 2013 that Bitcoin “won’t last long.”
By 2020, MicroStrategy’s stock price had barely moved for years, with bleak growth prospects. The company had a market capitalization of only $1.5 billion, though it was still profitable and held about $500 million in cash.
From “Won’t Last Long” to Bitcoin Supporter
During the COVID-19 pandemic in 2020, Saylor pondered how to manage the company’s cash at his home in Miami. Concerned that government spending to stabilize the economy could lead to inflation, Saylor revisited Bitcoin and became a staunch advocate for it.
Soon, he proposed to the board to use cash to buy Bitcoin, which they agreed to, mainly because the company seemed to have no better options. They believed at least this move could attract some beneficial attention.
“The company was making no progress at the time and was virtually invisible on Wall Street,” Rickertsen recalled, who later became a member of the board, “The outlook was bleak.”
That year, Saylor allocated half of the company’s cash, about $250 million, to purchase Bitcoin at around $11,000 per coin. He also invested over $100 million of his own money. However, Bitcoin’s price subsequently fell to $9,000, resulting in an approximate paper loss of $40 million for MicroStrategy.
“Most of us on the board said, ‘Oh my God, what have we done? We’re going to get sued,'” Rickertsen recounted, “Saylor was worried too.”
This panic did not last long. Bitcoin’s price began to rise, breaking through $26,000 by the end of 2020. MicroStrategy borrowed billions to purchase more Bitcoin, including a $205 million floating-rate loan at 8.27%, which had challenging lending terms at the time.
Then, in late 2022, the collapse of the cryptocurrency exchange FTX saw Bitcoin prices drop below $17,000, and MicroStrategy’s stock fell to around $17. The company’s Bitcoin holdings had an average cost basis of about $30,000, resulting in paper losses. Rumors circulated that the company was in trouble. But Saylor and the company doubled down.
As Saylor intensified the strategy of buying Bitcoin through stock and bond sales, and with Bitcoin prices continuing 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 belief in Bitcoin remains steadfast. He emphasizes that Bitcoin’s supply is limited, unlike the dollar or even gold. Saylor believes this makes Bitcoin more effective as a hedge against inflation. He also states that Bitcoin’s digital nature makes it easier and cheaper for holders to store and use, without intermediaries, representing a “revolutionary” form of currency.
Some mutual funds and other institutions have internal regulations prohibiting the purchase of Bitcoin and Bitcoin ETFs, making MicroStrategy’s stock an indirect way for them to bet on Bitcoin. Even some large conservative investors view this stock as a potential means to gain an advantage over competitors unwilling to engage with cryptocurrencies.
It turns out that Saylor is adept at creating different types of equity and debt investment products, such as bank loans, convertible bonds, and common stock, to ensure a steady stream of funding.
“His strength lies in creating different products for different audiences,” said Brett Messing, a senior executive at SkyBridge Capital, a firm that manages funds heavily invested in Bitcoin and provides advisory services for a fund holding MicroStrategy stock.
In the past month or so, Saylor has vigorously promoted MicroStrategy and Bitcoin on television, popular podcasts, industry conferences, and other venues. “If you’re not buying Bitcoin at a high price, you’re missing out on a money-making opportunity,” he recently tweeted.
“He is passionate in public and more nuanced in private,” said Matt Hougan, chief investment officer at Bitwise Asset Management, who heard Saylor speak at a dinner attended by 12 investors last summer. His company manages an ETF that holds MicroStrategy stock.
If Bitcoin prices continue to rise, the premium on holding MicroStrategy stock may persist. However, if Bitcoin prices plummet, MicroStrategy’s stock prices may also decline. Even if the premium disappears, as long as Bitcoin prices remain stable, its stock prices could still be affected. Skeptics point out that some similar investment vehicles, such as closed-end funds, often trade below 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 approximately $62,000. Only when Bitcoin prices drop below $16,000 and remain around that level when debts mature will the value of its Bitcoin holdings fall below its debts.
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 its current stock price.
This article is a collaborative reprint from: Deep Tide.