WSJ: GameStop Frenzy Reveals Power Shift on Wall Street
Original Title: The Man Making Billions From the Wildest Bitcoin Bet
Original Author: Gregory Zuckerman, WSJ
Translation: Luffy, Foresight News
MicroStrategy CEO Michael Saylor
Michael Saylor's company hasn't launched any popular products or services. What he and MicroStrategy have done is to issue new stocks and bonds at a historically rapid pace, then put all the funds into Bitcoin, vowing to do so repeatedly.
Over the past year, MicroStrategy's stock price has risen by about 690%. The 59-year-old chairman owns about 10% of the company, worth around $9.7 billion, and personally holds about $1.9 billion worth of Bitcoin.
Saylor has become a public face of the recent Bitcoin frenzy, with nearly 4 million followers on the X platform (formerly Twitter). To celebrate Bitcoin breaking $100,000, Saylor hosted a New Year's party at his mansion on the Miami waterfront, inviting hundreds of cryptocurrency community members, with his luxury yacht moored nearby. At the party, six dancers in gold outfits performed. Various celebrities and investment heavyweights gathered, including former Legg Mason fund manager Bill Miller, Fortress Investment Group chairman Peter Briger, and Capital Group's key portfolio manager Mark Casey. The event was livestreamed on YouTube to tens of thousands of Bitcoin enthusiasts, with Saylor, dressed in a black suit jacket and a Bitcoin-themed T-shirt, hosting the party.
The enthusiasm for Saylor's company is so high that it has led to a puzzling situation: MicroStrategy holds about $47 billion worth of Bitcoin, but 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 well-established mutual fund company Capital Group, which owns about 8% of MicroStrategy as of September 30, and Norway Bank Investment Management, managing $1.5 trillion in assets, holding nearly 1% of MicroStrategy.
Fans say this premium reflects their belief that Saylor will continue to profit from his Bitcoin bet. They argue that Bitcoin's capped supply of 21 million coins, and the resulting scarcity, will drive up its value. SYZ Capital partner Richard Byworth personally holds MicroStrategy stock and says Saylor has been able to create value for shareholders by issuing stock at a high price and selling bonds to the company at favorable terms to expand MicroStrategy's Bitcoin reserve.
"This premium is justified and will continue to exist," said Jordi Visser, a Wall Street veteran who previously worked at Morgan Stanley and recently bought MicroStrategy stock. "No other company has done what he has done. They own about 2% of the Bitcoin supply. Who else can own more?"
However, Saylor's strategy comes with significant risks. He has navigated through investment booms and busts, sometimes losing billions of dollars in personal wealth within a day when the boom turned to bust.
Saylor declined to comment for this article.
Saylor has never been married and will turn 60 next month. He has faced setbacks in his career and clashed with financial regulators. Last year, he agreed to pay $40 million to settle an income tax dispute with Washington, D.C. Officials had claimed he actually resided in the District, not in Florida or Virginia as he had stated, and thus owed taxes to D.C.
Saylor's father was a career Air Force officer. Saylor studied aeronautics and astronautics at MIT and participated in the Air Force Reserve Officers' Training Corps. A few years after graduating, in 1989, he founded MicroStrategy with a college friend in Tyson's Corner, Virginia, initially as a data mining software company.
During the late 1990s dot-com boom, MicroStrategy soared. Saylor's stock holdings were worth about $10 billion, enough to throw lavish parties for employees and others, including organizing Caribbean cruises. MicroStrategy also bought domain names like Mike.com, Michael.com, Hope.com, and Voice.com and sold Voice.com for $30 million.
But when the dot-com bubble burst in 2000, it all came crashing down. As regulators scrutinized industry revenue recognition practices, MicroStrategy was forced to restate its revenue and earnings. The collapse was so dramatic that it even attracted tabloid attention: in March of that year, the New York Daily News ran a story with the headline "Loses $6 Billion in One Day," featuring a photo of a 35-year-old Saylor looking neat in a suit and tie but with a bewildered expression on his face.
Saylor has always been a public figure in the Bitcoin space, and the above picture shows him speaking at a conference in 2023.
Later that year, Saylor, along with two other executives and the company, paid $11 million to settle accounting fraud charges brought by the U.S. Securities and Exchange Commission (SEC) regarding a financial restatement. The SEC alleged that the company had overstated its revenue and earnings, showing profits instead of losses, but Saylor and others neither admitted nor denied these allegations.
In July 2002, MicroStrategy's stock closed at 45 cents, a significant drop from its high of $313 in 2000, and the company was also grappling with debt issues.
During a lunch at his New York Bridgehampton estate, venture capitalist Rick Rickertsen expressed sympathy to Saylor and asked if he was worried about losing his company.
“It's possible,” Saylor said, “but I would start over.”
Saylor restructured MicroStrategy's debt and implemented a 10-for-1 stock split to avert the crisis. Over the years, Saylor had been searching for the next big opportunity. At one point, he made significant personal gains through investments in stocks like Google and Apple but dismissed Bitcoin, stating in a 2013 tweet that Bitcoin was “days are numbered.”
By 2020, MicroStrategy's stock had seen little movement over the years, with dim growth prospects. The company had a market capitalization of only $1.5 billion but remained profitable with around $500 million in cash.
During the COVID-19 pandemic in 2020, Saylor contemplated what to do with the company's cash from his Miami home. Concerned that the government's large spending to maintain economic stability could lead to inflation, Saylor reexamined Bitcoin and became a staunch supporter. Soon, he proposed to the board to buy Bitcoin with the cash, a move the board agreed to, primarily because the company seemed to have few better options. They believed this action, at the very least, would attract some beneficial attention.
“The company was going nowhere at that point, with virtually no Wall Street following,” Rickertsen, who later joined the board, said. “The outlook was bleak.”
That year, Saylor took half of the company's cash, about $250 million, to buy Bitcoin at around $11,000 per coin. He personally also invested over $100 million. However, the price of Bitcoin promptly dropped to $9,000, causing MicroStrategy to suffer a paper loss of about $40 million.
"Most of our board members were like, 'Oh my god, what have we done, we're going to get sued,'" Rickertsen said, "Saylor was also very concerned."
This panic did not last long. The price of Bitcoin started to rise, surpassing $26,000 by the end of 2020. MicroStrategy borrowed billions of dollars to buy more Bitcoin, including a $205 million floating-rate loan at 8.27%, which was challenging loan terms at the time.
Then, by the end of 2022, the cryptocurrency exchange FTX collapsed, causing the price of Bitcoin to drop below $17,000, and MicroStrategy's stock price fell to around $17. The company's cost basis for the held Bitcoin was around $30,000, resulting in a paper loss. Rumors circulated that the company was in trouble. However, Saylor and the company doubled down on their bet.
With Saylor increasing the strategy of purchasing Bitcoin through stock and bond offerings, and with the continuous rise in the price of Bitcoin, the company's stock price began to soar. According to Benchmark Company analyst Mark Palmer, in 2024 alone, MicroStrategy raised $23.2 billion through stock and bond sales.
Saylor's promotional rhetoric may be repetitive and simplistic, but his belief in Bitcoin has always been unwavering. He emphasizes that Bitcoin's supply is limited, a feature that sets it apart from the dollar and even gold. Saylor believes this makes Bitcoin a better hedge against inflation. He also states that Bitcoin's digital nature makes it easier and cheaper to hold and use, without the need for intermediaries, making it a "revolutionary" form of currency.
Some mutual funds and other institutions have internal rules prohibiting the purchase of Bitcoin and Bitcoin ETFs, so MicroStrategy's stock has become their indirect avenue to bet on Bitcoin. Even some large conservative investors see the stock as a potential way to gain an advantage over competitors who are unwilling to delve into cryptocurrency.
In hindsight, Saylor has proven adept at creating various types of equity and debt investment products, such as bank loans, convertible bonds, common stock, etc., to ensure a continuous influx of funds.
“His uniqueness lies in creating different products for different audiences,” said Brett Messing, an executive at SkyBridge Capital, which manages funds with significant Bitcoin investments and provides advisory services to a fund holding MicroStrategy stock.
Over the past month or so, Saylor has been aggressively promoting MicroStrategy and Bitcoin on TV shows, popular podcasts, industry conferences, and other occasions. “If you didn't buy Bitcoin at a high price, you are missing out on a money-making opportunity,” he recently tweeted.
“He is fiery in public and more nuanced in private,” said Matt Hougan, Chief Investment Officer at Bitwise, a crypto asset management firm who heard Saylor speak at a dinner last summer with 12 investors. His firm manages an ETF holding MicroStrategy stock.
If the price of Bitcoin continues to rise, the premium on holding MicroStrategy stock may persist. However, if the price of Bitcoin crashes, MicroStrategy's stock price may also fall. Even if the premium disappears, as long as the price of Bitcoin remains stable, its stock price may still be affected. Skeptics point out that some similar investment vehicles, such as closed-end funds, often trade at a discount to the value of their underlying assets, not a premium.
Nevertheless, the company may not face an existential 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 at an average cost of around $62,000. Only if the price of Bitcoin drops below $16,000 and stays near that level at debt maturity will the value of the Bitcoin holdings be less than the debt.
Just over a week ago, Saylor revealed a new way for MicroStrategy to raise funds from investors to support its Bitcoin buying plan. He announced that the company would sell $2 billion of “perpetual preferred stock” this quarter. This news led analyst Palmer to reiterate his $650 target price for MicroStrategy stock, about 65% higher than the current price.
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