How MicroStrategy Turned Its Fortune Around with a Bitcoin Bet
Michael Saylor’s company has not launched any popular products or services. What he and MicroStrategy have done is issue new stock and bonds at a pace rarely seen in corporate history, then invest all the funds into Bitcoin, vowing to repeat this process repeatedly.
Over the past year, MicroStrategy’s stock price has increased by approximately 690%. The 59-year-old executive chairman owns about 10% of the company, valued at around $9.7 billion, and additionally holds about $1.9 billion worth of Bitcoin personally.
Saylor has become a public figurehead of 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 members from the cryptocurrency community, with his luxurious yacht docked nearby.
At the party, six dancers dressed in golden outfits performed gracefully. 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 livestreamed 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 reached such heights that it has led to a puzzling situation: MicroStrategy holds Bitcoin valued at about $47 billion, yet its stock market capitalization has reached $97 billion. It’s as if investors are spending $2 to buy a $1 bill.
Equally astonishing 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, and the Norwegian sovereign wealth fund Norges Bank Investment Management, which holds nearly 1% of MicroStrategy.
Fans believe this premium reflects their confidence in Saylor’s ability to continue profiting from his Bitcoin bets. They believe that Bitcoin’s total supply is capped at 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 been able to create value for shareholders while expanding MicroStrategy’s Bitcoin reserves by issuing stock at high prices and selling bonds at favorable terms.
“This premium is justified and will persist,” said Jordi Visser, a veteran Wall Street professional who previously worked at Morgan Stanley and recently purchased MicroStrategy stock. “No other company can do what he has done. They own about 2% of the Bitcoin supply; who else can own more?”
What is Michael Saylor’s Background?
However, Saylor’s strategy comes with significant risks. He has experienced the ups and downs of investment waves, sometimes losing tens of billions of personal wealth in a single day when those waves reached their peak and then collapsed.
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 clashes 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 district rather than in Florida or Virginia, as he had asserted, and thus owed taxes there.
Saylor’s father was a career Air Force officer. He studied aeronautics and science at MIT and participated in the Air Force Reserve Officer Training Corps. A few years after graduating, in 1989, he co-founded MicroStrategy with a college friend in Tysons Corner, Virginia, initially as a data mining software company.
During the late 1990s dot-com bubble, MicroStrategy rose rapidly. Saylor’s stock holdings were worth about $10 billion, enough for him to host lavish parties for employees and others, as well as organize Caribbean cruises.
MicroStrategy also acquired domain names such as Mike.com, Michael.com, Hope.com, and Voice.com, selling Voice.com for $30 million.
However, 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 revenue and earnings.
This dramatic failure even caught the attention of tabloids: that March, the New York Daily News ran a headline reading “Lost $6 Billion in a Day,” accompanied by a photo of a 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, as shown in the image above where he spoke at a conference in 2023.
Later that year, Saylor, along with two other senior executives and the company, paid $11 million to settle accounting fraud charges brought by the SEC regarding financial restatements. The SEC claimed the company had inflated its revenue 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 $0.45, a significant drop from its 2000 peak of $313, 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’ll start over.”
Saylor restructured MicroStrategy’s debt and implemented a 10-for-1 reverse stock split, thereby avoiding a crisis. For years, Saylor searched for the next significant opportunity.
For a time, he achieved substantial personal gains by investing in stocks like Google and Apple, but he dismissed Bitcoin, stating in 2013 on Twitter that Bitcoin was “on borrowed time.”
By 2020, MicroStrategy’s stock price had remained stagnant for years, with bleak growth prospects. The company’s market capitalization was only $1.5 billion, but it was still profitable and had about $500 million in cash.
From “On Borrowed Time” to Bitcoin Advocate
During the COVID-19 pandemic in 2020, Saylor pondered how to deploy the company’s cash while at his home in Miami. Concerned that massive government spending to stabilize the economy could lead to inflation, Saylor revisited Bitcoin and became a staunch advocate.
Soon, he proposed to the board to use cash to purchase Bitcoin, which the board approved, primarily because the company seemed to have no better options. They believed this move would at least attract some beneficial attention.
“The company was making no progress at that time and had almost no attention from Wall Street,” Rickertsen said, who later became a board member. “The outlook was grim.”
That year, Saylor allocated half of the company’s cash, about $250 million, to buy Bitcoin at an average price of around $11,000 each. He personally invested over $100 million. However, Bitcoin’s price subsequently fell to $9,000, leading to an approximate $40 million paper loss for MicroStrategy.
“Most of us board members were saying, ‘Oh my God, what have we done? We’re going to get sued,'” Rickertsen recalled, “and Saylor was worried too.”
This panic did not last long. Bitcoin’s price began to rise, surpassing $26,000 by the end of 2020. MicroStrategy borrowed billions to buy more Bitcoin, including a floating-rate loan of $205 million at an interest rate of 8.27%, which had challenging loan terms at that time.
Then, following the collapse of cryptocurrency exchange FTX at the end of 2022, Bitcoin’s price fell below $17,000, and MicroStrategy’s stock price also dropped to around $17. The company’s Bitcoin holdings had an average cost basis of about $30,000, resulting in paper losses. Rumors swirled that the company was in distress. However, Saylor and the company doubled down on their bets.
As Saylor escalated his strategy of acquiring Bitcoin through stock and bond sales, and with Bitcoin’s price continuing to rise, the company’s stock price began to soar. According to benchmark company analyst Mark Palmer, 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 in Bitcoin remains steadfast. He emphasizes that Bitcoin’s supply is limited, which differentiates it from the U.S. dollar and even gold. Saylor believes this makes Bitcoin perform better as a hedge against inflation. He also points out that Bitcoin’s digital nature makes it easier and cheaper for holders to store and use, without the need for intermediaries, calling it a “revolutionary” form of currency.
Some mutual funds and other institutions have internal rules 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 the stock as a potential means to gain an advantage over competitors reluctant to enter the cryptocurrency space.
It turns out Saylor excels at creating various types of equity and debt investment products, such as bank loans, convertible bonds, common stock, etc., to ensure a continuous inflow of capital.
“What sets him apart is his ability to create 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 shows, popular podcasts, industry conferences, and other venues. “If you’re not buying Bitcoin at a high price, you’re missing a money-making opportunity,” he recently tweeted.
“He is passionate in public and more nuanced in private,” said Matt Hougan, chief investment officer of Bitwise Asset Management, who heard Saylor speak at a dinner with 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 price may also fall. Even if the premium disappears, as long as Bitcoin prices remain stable, its stock price could still be affected. Skeptics point out that some similar investment vehicles, like closed-end funds, often trade at prices below the value of their underlying assets rather than at a premium.
Nevertheless, 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 Bitcoin with an average cost basis of about $62,000. Only if Bitcoin prices fall below $16,000 and remain near that level when the debt matures would the value of the Bitcoin held by the company 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 disclosed that the company would sell $2 billion in “perpetual preferred stock” this quarter. This news prompted analyst Palmer to reiterate his $650 price target for MicroStrategy stock, which is about 65% higher than the current stock price.
This article is collaboratively reprinted from: Deep Tide