Michael Saylor bet billions on Bitcoin and lost

If you ask Michael Saylor why he bet his company’s future on bitcoin, he’ll tell you he had no choice.

In 2020, MicroStrategy Inc

MSTR 12.38%

The stock was stagnant and the tech company was struggling to compete with the software giants. “Either we were going to die a quick death, or a slow death, or we were going to start a risky strategy,” he said.

He chose to buy bitcoins—lots of them. This decision backfired, badly. On Tuesday, MicroStrategy announced that Mr. Saylor would step down as chief executive, a position he has held since 1989, amid mounting bitcoin-related losses.

His involvement with bitcoin began on August 11, 2020, when the company announced a plan to take $250 million — half of its corporate reserve — and convert it into bitcoin. It has since doubled and doubled again.

In total, MicroStrategy raised $2.4 billion in debt and loans. It issued $1 billion in equity. The company used it all to buy bitcoins.

For a while, the decision seemed to work. The price of bitcoin rose from around $11,900 in August 2020 to nearly $69,000 by November 2021. MicroStrategy stock rose from $124 the day before its announcement to a record high of $1,273 on February 9, 2021.

Michael Saylor speaks during a bitcoin conference in April as fund manager Cathy Wood listens.


Photo:

Marco Bello/Getty Images

But on Tuesday, MicroStrategy reported its seventh quarterly loss in the eight quarters since it started buying bitcoin. This time the loss was big: $1 billion, much of it from bitcoin.

On the same day, the company announced that Phong Le, the company’s chairman, would take on the additional role of CEO. Mr. Saylor assumed the role of executive chairman.

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Shares of MicroStrategy are down 49% year to date through Tuesday and 78% from their record high.

The company has nearly 130,000 bitcoins worth about $3 billion at current market prices. Its market value is around $3.1 billion. Essentially, MicroStrategy has become a bitcoin holding vehicle with a cash generating software business attached to it.

MicroStrategy’s losses mirror bitcoin’s volatility. Under accounting rules, the company must assess the value of its bitcoin reserves every quarter and incur an impairment charge if the price has fallen. MicroStrategy has taken on a number of such charges totaling about $2 billion.

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

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

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

This very philosophy has some market watchers worried.

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

First, Mr. Moya said, MicroStrategy’s strategy was only to buy and hold bitcoins. There was no speculation. There was also no hedge against the inevitable volatility and fall. When the sales came, MicroStrategy was exposed to their full range.

Michael Saylor at his home in Annapolis, Md.


Photo:

Alyssa Schukar for the Wall Street Journal

Another problem is that the company doesn’t have many more ways to get more money to buy more bitcoin, BTIG analyst Mark Palmer said. “Many of the levers that 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.”

But, Mr. Palmer said, the final judgment on MicroStrategy’s bitcoin bet won’t come until some of that debt it borrowed to buy bitcoin begins to mature. If the price of bitcoin falls, the company will have trouble repaying its creditors, he said.

“The clock is ticking on MicroStrategy’s debt maturity,” he said.

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

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

He says he will continue to lead MicroStrategy’s bitcoin investments. He has no plans to sell bitcoin and still expects it to gain value over the years. The company reiterated on Tuesday that it has no plans to sell bitcoins.

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

Write to Paul Vigna at paul.vigna@wsj.com

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