MicroStrategy's Billion Dollar Bet
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Distorted Reality: How Easy Money Broke the Market
Since 2008, the capital markets have pivoted significantly. There was a time when it was simple to price a stock, bond, or commodity. Any liquid asset with an active market, correlated with interest rates. The world knew how much money was worth.
But a lot has changed since then. The U.S. has taken on +$25 trillion of debt since 2008. This number continues to climb at an exponential rate. The first catalyst was the Great Recession when we bailed out the banks. The second major catalyst was the 2020 pandemic when we bailed out everyone.
Combined with a zero interest rate environment, every single asset has had a distorted pricing curve. Two asset classes that come to mind are U.S. Treasuries and Venture Capital. On one side of the spectrum, bonds delivered no risk, and no yield. On the other side, venture capitalists invested in high-risk startups that would deliver +25% returns YoY. Investors were starved for yield in a near-zero interest rate environment.
So where am I going with this? It wasn’t until the U.S. Government began to distort the yield curve so that investors began to notice the mispricing of all capital assets. Enter Michael Saylor, the billionaire tech entrepreneur who was skeptical of everything.
MicroStrategy: From Data Analytics to Bitcoin Bet
Michael Saylor is one of the longest running tech CEOs in America. Which is impressive when you realize how cyclical technology has been since the 1980s. Saylor founded MicroStrategy in 1989 to solve data intelligence problems.
If you want to understand cyclicality, look at this chart of MicroStrategy’s stock price. It took 24 years for the stock to surpass its all-time high by $30 billion. Today the company is worth $85b.
Now if you have been living under a rock, you’re probably wondering what catapulted MicroStrategy (MSTR) from $14 in 2020 to $348 in 2024. Remember that distorted yield curve I mentioned earlier? As a seasoned CEO of a publicly traded company, Saylor is familiar with navigating the debt and equity markets.
When the U.S. Government devalued the Dollar by printing so much money, Saylor had two options: buy more Treasuries that earn 0% or make very, very risky investments. Hint: he chose the latter, and it paid off big time.
Let’s dive deep into why Saylor bought Bitcoin and found himself in the Nasdaq-100 index.
Why MicroStrategy is entering the Nasdaq-100
Today, MicroStrategy joins the Nasdaq-100. In some ways, this is more unusual than his Bitcoin Treasury strategy but I’ll expand on that later. The Nasdaq-100 index is composed of the largest tech companies in the world. The index concentrates on major players such as Apple, Meta, and Broadcom. I wrote more about the Nasdaq-100 here.
Now the interesting part is that MicroStrategy is a data analytics & business intelligence business. They specialize in selling software to major enterprises. At the core, MicroStrategy is no different than other IT companies who sell subscriptions, software licenses and professional services.
I said IT because MicroStrategy wasn’t built like a traditional software business. The company operated with net profit margins that hovered between 5-10% for years.
So in 2020, MicroStrategy had ~$500m in revenue, $500m in cash and a $2b market cap. This was right before Michael Saylor went all in on Bitcoin.
The Nasdaq-100
Joining the Nasdaq-100 is a significant milestone for MicroStrategy. It will increase institutional investments. Any fund managers that track the QQQ or NDX, are obligated to buy MSTR in the open market. This enhances liquidity for MSTR’s trading volume. More Wall Street analysts will cover the stock. The stock price will go higher, and the cycle continues.
Before you decide to buy MicroStrategy stock, it’s worth mentioning how Saylor has been financing his Bitcoin purchases. For the past few years, Saylor has been raising cash through equity and debt offerings.
In fact, this past October, MicroStrategy announced a $42 billion capital plan to buy more Bitcoin. This will be another $21 billion in equity and $21 billion in fixed income. Saylor has made it very clear that MicroStrategy is a directional bet on Bitcoin, and the price needs to go up.
The Saylor trade
2020 was a pivotal year for many investors, but even more so for Saylor. His decision to make a risky investment came because he believed his $500m cash balance was being devalued 25% per year. So if Saylor didn’t make an investment or bought zero-rate Treasuries, he would stand to lose $125m that year alone. Which is why Bitcoin became his viable alternative investment strategy.
Today Saylor is a vocal Bitcoin advocate but in 2020 the rationale behind his decision was simple:
He believed Bitcoin’s limited supply would make it a superior store of value compared to other fiat currencies. (In his video interviews listed below, Saylor mentions how he lost $1m because the Argentine government confiscated his accounts. He’s very familiar with inflation.)
Since 2020, MicroStrategy's Bitcoin investment has had a profound impact on its stock price. Today the stock trades as a future bet on Bitcoin, as opposed to the traditional software business it once was.
Saylor’s current hunt for +2%
As I was writing this newsletter today, Saylor literally bought more Bitcoin. At this point, I can’t even keep up with his capital plan. At the moment, MicroStrategy owns 2% of the Bitcoin supply. This is 444,262 Bitcoins.
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At 1% market share, I thought he had already begun cornering the market and reached his financing limits. But as the stock price continues to rise, Saylor is able to raise even more capital. This has almost become an infinite money glitch, to make money AND raise money.
Now if you are a tech investor but don’t want to buy crypto directly, you’re thinking MicroStrategy has the diversification you need. It’s a high-volatility stock and your portfolio needs that exposure.
Well I would tell you to do your due diligence because the risk/reward ratio is all over the place. If you want to buy a software stock, buy a pure-play software company. If you want to own crypto, buy the asset directly. You don’t need Saylor’s fancy investment strategy to tell you what to do. He’s deeply committed to pushing the price of Bitcoin higher.
His motives are clear. They may not align with your investment strategy, but his incentives are transparent. You can track MicroStrategy’s Bitcoin purchases in real-time with the Saylor Tracker. He ‘dollar’ cost averages more into crypto than the average investor does in regular stocks or index funds.
Why cornering the market doesn’t work
The market will always be more liquid than you can remain solvent. I’ve learnt this investment strategy a dozen times. Sometimes you think the stars will align and you’ll buy at the absolute bottom and sell at the peak. This is unlikely to happen.
Also, historically cornering the market has not worked well for many investors. One notable failed attempt were the Hunt Brothers trying to corner the global silver market in the 1980s. However, when the regulatory changes limited silver futures positions, the price of silver dropped like a rock. Silver crashed 50% and the Hunt Brothers lost billions of dollars.
MicroStrategy's journey into the Nasdaq-100 is a fascinating case study. It’s a story of how a traditional software company pivoted into the world of cryptocurrencies. While Saylor’s strategy has drawn criticism, I can’t deny it has transformed the company's trajectory.
For tech investors, MSTR presents a unique yet risky opportunity. Make sure to stay informed, do your research, and approach this opportunity with a balanced perspective. Zoom out if you don’t understand the full picture.
Additional resources
Here are a few resources that might interest you (affiliate links)
The Bitcoin Standard
The Bitcoin Standard is one of my favorite books to recommend. If you don’t know the history of money, it is an excellent read. Saifedean is an economist who provides a deep exploration of what money is and how it is made.
Today we take the U.S. Dollar for granted since it was invented over 200 years ago. Yes, invented. No one thinks about the invention of the U.S. Dollar because the before current times. If you want to learn why Bitcoin is considered hard money, read his book.
The Mobile Wave
The Mobile Wave is a book that technologists will enjoy. Before Bitcoin, Saylor wrote a book about the mobile revolution, specifically referring to the invention of the iPhone. This was in 2012 when smartphones were relatively new. No one was betting big on the iPhone. In fact, Apple’s market cap was less than $500b in 2012. The stock price has risen 10x since.
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I recommend checking out the 7-day free trial to analyze MicroStrategy’s stock yourself.
Michael Saylor Podcast Interviews
If you want to learn more about Saylor, I recommend watching these YouTube videos.