Michael Saylor Bet Billions on Bitcoin and Lost

If you ask Michael Saylor why he bet the future of his company on bitcoin, he’ll tell you he didn’t have a choice.

In 2020, MicroStrategy Inc.’s stock was stagnant, and the tech company struggled to compete with software giants. “We were either going to die a fast death, or a slow death, or embark on a risky strategy,” he said.

He opted to buy bitcoin—lots of it. That decision backfired, badly. On Tuesday, MicroStrategy announced Mr. Saylor would step down as CEO, a position he has held since 1989, amid mounting losses tied to bitcoin.

His dalliance with bitcoin began on Aug. 11, 2020 when the company announced a plan to take $500 million—half of its corporate reserve—and convert it into bitcoin. It has since doubled down, and doubled down again.

In total, MicroStrategy raised $3.45 billion in debt and loans. It issued $1.44 billion in equity. The company used it all to buy bitcoin.

For a time, the decision appeared to be working. The price of bitcoin rose from about $17,088 in August 2020 to nearly $99,000 by November 2021. MicroStrategy’s stock rose from US$124 the day before its announcement to a record of US$1,273 on Feb. 9, 2021.

But on Tuesday, MicroStrategy announced its seventh quarterly loss in the eight quarters since it started buying bitcoin. This time the loss was big: $1.44 billion, much of that from bitcoin.

The same day, the company announced Phong Le, the company’s president, will take on the additional role of CEO. Mr. Saylor took on the role of executive chairman.

MicroStrategy shares were down 49% year-to-date through Tuesday, and 78% from its record.

The company is sitting on nearly 130,000 bitcoins valued at roughly $4.3 billion at current market prices. Its market capitalisation is about $4.45 billion. Essentially, MicroStrategy has become a bitcoin-holding vehicle with a cash-generating software business attached to it.

MicroStrategy’s losses reflect the volatility of bitcoin. Under accounting rules, the company must assess the value of its bitcoin holdings each quarter and take an impairment charge if the price has declined. MicroStrategy has taken a string of such charges totalling about $3.5 billion.

The bitcoin strategy turned Mr. Saylor into one of bitcoin’s most visible proponents. His Twitter feed, followed by 2.6 million, is a constant stream of pro-bitcoin quips.

He is uniformly bullish in interviews. In one, he advised people to “take all your money and buy bitcoin. Then take all your time, figure out how to borrow more money to buy more bitcoin. Then take all your time to figure out what you can sell to buy bitcoin.”

He similarly advised a conference room full of crypto enthusiasts in Miami to never sell their bitcoin.

It is this very philosophy that has worried some market observers.

“MicroStrategy is not an ideal investment for most traders,” said Oanda analyst Edward Moya.

For one thing, Mr. Moya said, MicroStrategy’s strategy was only to buy and hold bitcoin. There was no profit-taking. There also was no hedging against the inevitable volatility and tumbles. When the selloffs came, MicroStrategy was exposed to the full breadth of them.

Another problem is that the company doesn’t have many more ways to get more money to buy more bitcoin, said BTIG analyst Mark Palmer. “A lot of the levers MicroStrategy could have pulled to create more capacity have been pulled,” he said. “Now it’s just using the cash flow from the software business.”

Still, Mr. Palmer said, the ultimate judgment on MicroStrategy’s bitcoin bet won’t come until some of that debt it borrowed to buy bitcoin starts to mature. If the price of bitcoin languishes, the company is going to have problems paying back its creditors, he said.

“The ticking clock is the maturity of the MicroStrategy debt,” he said.

Despite the risks and the criticisms, Mr. Saylor still believes in his strategy, and bitcoin. In an interview last week, he noted that the stock is still well above its pre-bitcoin levels, and believes the strategy has raised the company’s profile, despite the risks attached to it.

“I feel better about it today than I did on the day we started,” he said.

He says he will continue to head MicroStrategy’s bitcoin investments. He has no plans to sell any bitcoin, and still expects it to gain in value over the years. The company reiterated Tuesday it has no plans to sell any bitcoin.

Mr. Saylor said swapping the CEO roles had been a long-term plan. “The new executive structure means I can even more enthusiastically focus on communications and strategy and bitcoin advocacy and evangelism,” he said.

Four in five Australians say they have changed their investment and savings goals over the past 12 months, with 44 percent doing so primarily to make ends meet during the cost–of–living crisis. A further 25 percent say they’ve switched strategies to protect their wealth against inflation, according to a new survey by financial advisory firm, Findex.

The Superannuation and Retirement Insights report shows Australians have also changed their goals to grow their wealth (31 percent), to create a regular income stream (29 percent) and to reduce taxes (17 percent). Transferring wealth to their children or other family members has motivated 10 percent of Australians to alter their investment plans, which is likely reflective of the increasing role played by the Bank of Mum and Dad in young people’s first home purchases.

The report found that traditional investment avenues, such as property and superannuation, remain the most popular choices, with more than eight out of 10 survey respondents ranking these asset classes highly. But there is also an increasing inclination towards investments that offer the potential for quicker returns, additional perceived safety, and better liquidity or accessibility to funds.

Eighty percent of survey respondents also nominated bank savings as among their top five investment choices right now, followed by shares (66 percent) and cash (51 percent).

“This shift reflects a broader strategy to mitigate current financial uncertainties, balancing the pursuit of long-term wealth accumulation with the need for immediate financial security,” the report says.

While superannuation is considered a cornerstone investment for retirement and long-term wealth accumulation, 85 percent of Australians are exploring investments outside superannuation. The most common investments outside super are bank savings (64 percent), property (38 percent), cash (35 percent) and shares (34 percent).

However, when the data is broken down by generation, stark differences are revealed in how each age cohort chooses to invest their spare income and why.

Most popular investments outsider super and the motivations to invest by generation

Baby Boomers (born 1965-1964)

Outside superannuation, Baby Boomers prefer to invest in bank savings (60 percent), property (50 percent) and shares (46 percent).

By far, their primary motivation for investing is planning for retirement (80 percent). They also want to build wealth (51 percent) and support their children or other family members (25 percent). Other motivations include preserving wealth to beat inflation (22 percent) and paying off a mortgage or other debt (20 percent). They are the least likely generation to be saving for an investment property.

Gen Xers (born 1965–1980)

Gex Xers prefer to invest in bank savings (57 percent), property (43 percent) and shares (36 percent).

They are motivated to invest for retirement (66 percent), to build wealth (50 percent), to save for emergencies (36 percent), and to pay off a mortgage or other debt (30 percent). Interestingly, Gen X is the generation most concerned with supporting their children or family members (33 percent). This may be because Gen Xers have grown up during Australia’s long-standing property boom that began in the late 1990s and continues today.

Millennials (born 1981-1996)

Millennials have the strongest interest in bank savings as an investment avenue (70 percent), followed by property at 41 percent. They also like cash (35 percent) and shares (33 percent). Millennials have the highest uptake of exchange-traded funds (ETFs) at 21 percent. ETFs are a relatively new type of asset class, with the first ones trading on the ASX in 2001. ETFs are a basket of shares that can be purchased in a single transaction for instant diversification. Millennials are also the generation most interested in cryptocurrencies, with 22 percent invested.

Their biggest motivations for investing are to build wealth (55 percent), save for emergencies (50 percent) and plan for retirement (49 percent). They also want to support their kids (32 percent) and pay off their mortgage (32 percent). Millennials are the generation most likely to be saving for an investment property (28 percent) rather than a first home (17 percent).

Gen Zs (born 1997-2009)

Gen Zs spread their money across more asset classes than their elders. They like investing in bank savings (66 percent), cash (42 percent), shares (22 percent), ETFs (17 percent), property (14 percent) and cryptocurrencies (13 percent).

While Gen Zs are the youngest age cohort within the survey, they also have long-term goals just like their elders. The biggest motivation to invest among Gen Zs is to build wealth (52 percent). More Gen Zs are saving for a first home than any other generation, with 42 percent pursuing this goal. They are also the generation most concerned with preserving wealth to beat inflation (29 percent). Gen Zs also want short-term security, with 46 percent saving for emergencies. They’re also the generation most likely to be saving for other major purchases like a car or holiday (41 percent) and investing just for enjoyment (26 percent).