In the dog days of the 2020 pandemic summer, an unlikely company emerged as the talk of Wall Street and crypto Twitter alike. MicroStrategy, a once-obscure tech firm nestled in a Virginia office park, had gone on a bitcoin buying binge—eventually pouring nearly $28 billion into the digital currency on a quirky quest to become the world’s first “bitcoin treasury company.”
Fast forward to late 2024, and that audacious bet by MicroStrategy co-founder Michael Saylor has, in the eyes of many, paid off spectacularly. The company’s stock price has rocketed twentyfold to nearly $75 billion, catapulting it into the Nasdaq 100 index. UK investors have piled in, tantalized by the prospect of a bitcoin proxy play without the hassle of holding crypto directly.
The “Flywheel” Financing Strategy
How exactly did a humdrum business software provider morph into a turbocharged crypto trading vehicle? The key lies in Saylor’s unique “flywheel” approach to financing MicroStrategy’s bitcoin binge. Here’s how it works:
- Issue convertible bonds with low or zero interest rates
- Use bond proceeds to buy more bitcoin
- Rising bitcoin prices boost MicroStrategy stock
- Sell new shares at higher prices to raise more bitcoin-buying funds
- Rinse and repeat the cycle with more bonds and stock
Through this self-reinforcing loop, Saylor has engineered an ingenious way for MicroStrategy to ride the upward draft of the crypto bull market. Bond investors get exposure to any bitcoin price upside through the ability to convert to stock later, while equity holders cheer the steady inflow of capital to scoop up more coins.
Brilliant or Bonkers?
Of course, not everyone is sold on the MicroStrategy model. Skeptics paint Saylor as a reckless gambler, arguing the company has evolved into little more than a hyper-leveraged bitcoin fund with a flimsy software business tacked on.
MicroStrategy is preying on investors and pumping up optimism in bitcoin to drive higher volatility in its stock. Investors who want to buy bitcoin should just buy bitcoin or the numerous bitcoin ETFs available.
– Michael Lebowitz, RIA Advisors
The core risk lies in MicroStrategy’s staggering debt load. With some $7.2 billion in outstanding convertible bonds used to finance bitcoin buys, even a modest pullback in crypto prices could spell disaster if the notes come due and bitcoin is trading well below the purchase price. A sustained bear market or regulatory crackdown could send the whole enterprise toppling.
Believing in the Bitcoin Dream
Still, true believers see any price dip as a chance to indulge Saylor’s insatiable appetite for sats (the smallest unit of bitcoin). He remains adamant that MicroStrategy will hold strong as bitcoin marches toward his lofty prediction of $1 million per coin. If he’s right, $100,000 may seem a quaint memory for future investors.
The fate of MicroStrategy has become a Rorschach test for one’s view on bitcoin itself. Bulls see a brilliant way to play the crypto revolution through traditional financial instruments. To bears, it’s emblematic of a reckless frenzy where the pursuit of number-go-up has blinded companies to the dangers of an overleveraged balance sheet and a capricious regulatory environment.
Only time will tell if MicroStrategy’s moonshot bet cements Saylor as a visionary or a cautionary tale. But one thing is certain—in a market where risk-taking is richly rewarded, fortune favors the bold. By pushing his chips all-in on bitcoin, Saylor has engineered the ultimate high-stakes wager for the crypto era.
