The Collapse of Bitcoin's Mendacious Messiah
The Collapse of Bitcoin's Mendacious Messiah
Every mania has its Icarus. Michael Saylor is that tragic figure for Bitcoin
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Hear the name “Cathie Wood”- the founder of ETF provider ARK invest- and you probably think of “disruptive investing.”
Investors rode her ARK Innovation ETF (ARKK) round trip from $37 in March 2020 to $156, back down to $37 today.
(Don’t say I didn’t warn you!)
The similar mania in cryptocurrencies has been less associated with a single figure- at least before the recent implosion of FTX and Sam Bankman-Fried.
Dozens of "crypto bros"- movie stars like Matt Damon, athletes like Le Bron James, and celebrities like Kim Kardashian-have vied to become the face of crypto.
But the first among equals- the most prominent public Bitcoin whale in the US - has been Michael Saylor, the CEO of MicroStrategy, a Virginia-based enterprise software company.
Saylor's multi-billion dollar bet on Bitcoin and cocksure demeanor earned him cult status on the cryptocurrency conference circuit and among his enviable 2.8 million followers on Twitter.
But I predict much like Cathie Wood, Saylor’s rise- and the inevitable collapse of MicroStrategy (MSTR) stock will go down in the annals of the financial history of booms and busts.
Who Is Michael Saylor?
Saylor was born in 1965 and grew up in Dayton, Ohio.
Saylor was valedictorian of his high school class. Voted most likely to succeed, he went on to study at MIT.
But Saylor was always more about entrepreneurial verve than raw brainpower.
In 1989, at 24, Saylor launched MicroStrategy, which developed software that helped businesses figure out who was buying their products.
Even then, Saylor spoke of MicroStrategy’s mission in messianic terms.
“We’re purging ignorance from the planet,” he said.
Saylor was on a “crusade for intelligence.”
He wanted to make information “free… running like water.”
But like any cult leader, Saylor cared less about mission than he did about money.
MicroStrategy: Boom to Bust
A decade after its founding, MicroStrategy endured a classic- and historic- boom and bust.
MicroStrategy had gone public on June 11, 1998, at $12, on the eve of the dot-com boom.
Nearly two years later, the stock hit $3300.
Saylor’s net worth soared to an eye-watering $13.6 billion. For a brief moment, Saylor was worth more than Oracle founder Larry Ellison.
Then the MicroStrategy story unraveled overnight.
On March 20, 2000, MicroStrategy admitted it had overstated its earnings for the previous two years.
Instead of a profit of $12.6 million in 1999, it recorded a loss of up to $40 million.
That day, Saylor made history.
Within six hours after the news hit the market, Saylor’s net worth dropped by $6.1 billion.
Never before in the history of Wall Street had anyone lost so much money in such a short time.
In 2001, Fortune Magazine published a list of the top losers of the Tech Bubble.
Michael Saylor ranked number 1 with a whopping $13.53 billion loss.
MicroStrategy's shares had gone from $3300 to $4, a 99.99% decline.
Subsequently, Saylor, two other MicroStrategy executives, and the company paid $11 million in a settlement with the SEC.
MicroStrategy: Boom to Bust 2.0
Luckily for Saylor, America is a land of short memories and second chances.
And Saylor’s using his second chance to lose investors billions more.
After starting as a Bitcoin skeptic, Saylor morphed into Bitcoin uber bull.
Never one to understate his case…
Saylor has called Bitcoin “the most universally desirable property in space and time.”
Putting his money where his mouth is, MicroStrategy began buying bitcoin in August 2020.
Saylor rationalized his company's decision as a way to dodge inflation, taxes, and fees. It was simply the best way to put extra capital to work.
Initially, MicroStrategy just used the company’s cash.
But then MicroStrategy took out a $205 million loan in March, collateralized by Bitcoin, to buy more Bitcoin.
Put another way, he borrowed money to buy more BS collateralized by the same BS.
As of September 20 of this year, MicroStrategy held 130,000 bitcoins. It acquired these for nearly $4 billion — at an average price of $30,639.
That may have made MicroStrategy the second-largest holder of bitcoin in the world, on the heels of Bitcoin founder Satoshi Nakamoto.
The Collapse of Crypto
A widespread crypto winter has plunged Bitcoin’s price to its lowest price since November 2020.
And Saylor is already looking at staggering losses.
MicroStrategy's Bitcoin stash was worth about $5.9 billion at the end of the first quarter of 2022.
It had paid an average of over $30,000 per coin.
With Bitcoin finishing around $17,000 on December 1, that same pile was worth about $2.21 billion, or about 57% less than what he bought them for.
And according to some reports, if the price of Bitcoin stays below $21,000, the company could face a margin call.
MicroStrategy will be forced to put up more Bitcoin as collateral for its $205 million loans.
Saylor hasn’t wavered in his Bitcoin bullishness.
Saylor still insists that this is a buying opportunity for bitcoin.
Or, in crypto parlance, he’s still HODLing (holding on for dear life).
And that MicroStrategy will hold onto its Bitcoin for 100 years.
Most recently, he predicted the value of bitcoin would overtake gold within ten years. That would make Bitcoin worth $500,000 with a market capitalization of $10 trillion.
The only thing more absurd is fellow BS traveler Cathie Wood's prediction of $1 million Bitcoin by 2030.
Here’s a reality check
Saylor is fighting a losing battle.
Aside from spurring a speculative mania, Bitcoin has failed on all fronts.
It’s not a store of value. It doesn't provide a hedge to equity markets. It is not an inflation hedge. It isn’t environmentally friendly. It’s cumbersome to use.
Bitcoin is simply worthless.
No wonder Warren Buffet said that he wouldn’t buy all the Bitcoin in the world for $25.
That makes Bitcoin worse than tulip bulbs.
Speculators may have lost money in the Tulip Bubble of 1636. But at least you can eat tulip bulbs. (They reportedly taste like onions.)
That said, just because Bitcoin is worthless doesn’t mean you can’t make money from it.
"Buy low, sell high" applies easily to Bitcoin, MicroStrategy, or any other traded asset.
Its volatility is its most significant- and perhaps only- asset.
Here’s my prediction.
In the end, MicroStrategy investors- like those in Bitcoin- will have lost billions.
And MicroStrategy's fate will echo its previous collapse at the end of the dot-com boom. Its stock price will once again fall to zero.
And Michael Saylor will become a highly public scapegoat of this era of rampant speculation- and have earned himself a place in future histories of financial manias.
And yes, I am short MicroStrategy (MSTR) through both stock and options.
How could I not be?
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