Michael Saylor, the CEO of MicroStrategy, is the man who persuaded Elon Musk to invest billions of Tesla’s dollars in Bitcoin. Saylor’s company holds more than $2.24 billion worth of Bitcoin and has been on a buying frenzy in the last few months as the No. 1 cryptocurrency has been leading the digital assets bull run.
A Nasdaq-listed business intelligence company, MicroStrategy holds more than 92,000 Bitcoin at an average price of about $24,000 per coin and is considered the champion of Bitcoin. Tesla bought $1.5 billion worth of bitcoin earlier this year to hold on its balance sheet. News of the buy sent the Bitcoin price rallying.
Saylor has remained bullish about Bitcoin even when it showed signs of peaking and slowing down since early this year. He even asked investors to sell all their earthly possessions and buy Bitcoin.
“Take all your money and buy Bitcoin,” Saylor said during a debate with Frank Guistra, CEO of the Fiore Group, a private firm managing a broad portfolio of private equity investments and companies.
“Then take all your time to figure out how to borrow more money and buy more Bitcoin. Then take your time to figure out what you can sell to buy more Bitcoin.” Then Saylor added that investors should mortgage their houses and businesses to buy Bitcoin.
Guistra told Saylor that his strategy was irresponsible and reckless.
The crypto price plunge in the last two weeks has proven Guistra was right. There are predictions that the bubble burst could push Bitcoin’s price to as low as $15,500, a level at which MicroStrategy’s investment in the digital asset would be under water.
The Bitcoin “bubble burst” appears to be in progress, with signs pointing to a $15,500 support level for the world’s largest cryptocurrency, according to a May 16 tweet by Puru Saxena, an investment portfolio manager and popular investment commentator.
Bitcoin’s price was down by as much as 50 percent, from a peak of $64,829.14 in mid-April, as markets reacted to news that Musk would reverse plans to accept Bitcoin as payment for Tesla’s electric cars due to environmental concerns. China’s move to ban financial and payment institutions from providing cryptocurrency services further exacerbated the plunge.
Digital assets prices have since recouped some of the losses but not without leaving doubts in investor sentiments of Bitcoin’s “digital gold” status and the hype of it being a hedge against inflation.
MicroStrategy’s stock price also took a hit in the wake of crypto markets rout. The shares tracked Bitcoin’s slide more closely than any other cryptocurrency-linked stocks, according to data by Bloomberg.
But for Saylor, the dip in crypto prices is just another opportunity to buy even more Bitcoin. The publicly traded business intelligence company has purchased bitcoin in $15 million tranches at least once a month since March in accordance with Saylor’s “sat-stacking” treasury reserve policy.
Sat stacking means accumulating Bitcoin by buying smaller amounts at certain intervals.
“MicroStrategy has purchased an additional 229 bitcoins for $10.0 million in cash at an average price of ~$43,663 per #bitcoin. As of 5/18/2021, we #hodl ~92,079 bitcoins acquired for ~$2.251 billion at an average price of ~24,450 per bitcoin. $MSTR,” Saylor tweeted.
Saylor’s strategy to borrow and sat stack Bitcoin on margins has been questioned by analysts.
Peter Schiff, chief economist and global strategist at Europac.com, said Saylor’s strategy relies largely on other CEOs, such as Elon Musk, also buying Bitcoin and pumping its price up on mere euphoria and no fundamentals backing the rally.
“@michael_saylor is borrowing another $600 million to buy more #Bitcoin for #MicroStrategy on margin. Saylor, who refuses to debate me, wants other CEOs to follow his lead. But will other CEOs gamble on Bitcoin just to prop up the price of the Bitcoin MicroStrategy already owns?” Schiff tweeted in February.
Bears have even questioned Saylor’s past dealings and the actual transactional value of Bitcoin.
In 2000, Saylor’s MicroStrategy was sanctioned by the U.S. Securities and Exchange Commission and forced to pay $11 million in a settlement, accused of an accounting scheme that overstated its earnings, making a money-losing, publicly traded corporation look profitable.
MicroStrategy has recorded declining revenue from its core software-making business since 2014. On the other hand, Bitcoin is seen as “worthless” when it comes to being a store of value and usability other than a speculative “casino token” since it is not backed by any government.
“(Saylor) says that the company will hold onto its Bitcoin for 100 years. But a company struggling to increase revenue that chooses to put its cash reserves into a speculative digital cryptocurrency is reason enough to take pause,” wrote Jacob Silverman of The New Republic in January. “Saylor and MicroStrategy’s history of alleged fraud is another one.”
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
Michael Kao, a Los Angeles-based investment analyst, said on Twitter @UrbanKaoboy that there was “no bigger poster-child for crypto-hubris” than Saylor, whom he called “the Lord of Cyber Hornets”.
In a thread of tweets, Kao questioned Saylor’s decision to issue two convertible bonds to buy Bitcoins and hold them to perpetuity.
“I have written at length about how his decision to issue 2 convertible bonds to HODL BTC have created extremely destabilizing influences in the MSTR capital structure,” Kao wrote on Twitter.
Kao added that the “negative gamma-like” effect between MicroStrategy’s shares and Bitcoin could leave Saylor’s investment strategy in the digital asset exposed to insolvency. This could force him to dump Bitcoins.