Cycles: MicroStrategy Back Again

MicroStrategy is almost exactly where it was 2000, uncanny.

Update: In reference to the question below, the simplest take is cycles and socionomics. MicroStrategy was well marketed in the dotcom bubble, soared and then crashed. It ended up with an SEC investigation. I'm not sure that history won't repeat.

Washington Business Journal: MicroStrategy CEO Michael Saylor's Bitcoin gambit has made him a billionaire

The Tysons business intelligence software firm began buying up Bitcoin in August, using both spare cash and ultimately by raising debt, as part of Saylor's bid to hedge against what he believes is a devaluing dollar. On Jan. 22, the company said it had purchased another 314 bitcoins for $10 million.

That latest buy now brings the company's total to about 70,784 bitcoins acquired for a combined $1.135 billion in purchase price — or the equivalent of about $16,035 per Bitcoin.

Washington Business Journal: MicroStrategy just raised $650M — and it's investing it all in Bitcoin

In this case, it recently raised $650 million in debt and will invest the proceeds, which works out to about $634.9 million, into Bitcoin, the company said in a Dec. 11 filing. The move is just the latest in a series of large Bitcoin purchases by the business intelligence software company in recent months. It began with a $250 million purchase in August, followed by another $175 million in September and another $50 million earlier in December, according to additional filings.

As of Dec. 5, the company owned about 40,824 bitcoins at a total purchase price of about $475 million, including fees and expenses. That would put its total investments after this latest raise above $1 billion in Bitcoin.

The move comes as MicroStrategy CEO and founder Michael Saylor has become increasingly vocal about the value of the cryptocurrency and increasingly bearish on the strength of the U.S. dollar — and, he said, Bitcoin's usefulness as a place to park a company's reserves. In a July earnings call, Saylor said Covid-19 and an unprecedented level of financial stimulus would weaken the dollar and other currencies.

There are layers to unpack. At the bottom layer, MicroStrategy had a market capitalization of roughly $1 billion back when it started buying BTC in August 2020. It borrowed $650 million in December via convertible notes and put all of that cash into BTC. If BTC is experiencing a price bubble, it's possible management will have destroyed a large amount of shareholder value, particularly if there's a bear market and recession that accompanies such an event. With the rise in Bitcoin's price, the company can probably get out from under its debt, but will it?

A more cynical take is that MicroStrategy is more fluff and marketing than anything else. Shares soared in the doctom bubble and they're soaring at the tail end of another bubble because the management are hucksters. If BTC does go bust and MicroStrategy ends up losing on this investment, I'm sure the management/CEO will be sued by shareholders. It's also possible the SEC will investigate and/or bring charges, even if there isn't any criminal activity. I expect the same for Elon Musk and Tesla in that case because the SEC and government in general look for scapegoats in a crash. They will manufacture crimes ex post facto.

Finally, there's a socionomic take, with MicroStrategy serving as a signal of speculative excess.

The measured move after the Superbowl ad aired on January 30, 2000 and the move down from the top.

CNN Money: MicroStrategy plummets, Shares fall more than 60 percent on earnings, revenue restatement (Archive link)

The little-known Vienna, Va.-based company, which has seen its stock shoot up thousands of percent over the past year, said it will report a 1999 loss instead of a profit, and also will revise 1998 results downward after changing the way it reports software revenue from service contracts. The move comes three months after the U.S. Securities and Exchange Commission, concerned that some companies -- particularly high-tech firms -- are artificially boosting revenue in earnings statements, issued new guidelines for how revenue should be reported.