I’ve come to learn that often the people with the highest confidence, the most seemingly infallible, tend to be the ones who fall hardest… Or in rare occasion, cement themselves in history breaks as one of the greats. There is no in-between.
The 2008/09 financial crisis serves as perhaps the quintessential example of this, with Wall Street’s biggest titans collapsing like a pebble cutting through a glass house, splintering it into a thousand pieces. Thus, I often look for similar circumstances. While individuals like Elon Musk occasionally navigate through these tumultuous moments, they are often the exception rather than the norm.
I am here, wondering whether the same is now true for MicroStrategy and Michael Saylor’s massive bet on Bitcoin.
Let me clarify: I am in no way betting for or against MicroStrategy or Saylor at this time. I commend some of his purchases! He bought the lows on a few occasions. His average price of entry, as of this writing, is $35,000, while the current price is over $60,000. However, at what point does the trade become unsustainable? Or for the bullish ones out there, at what point is it irrefutably one of the best trades ever?
MicroStrategy and Michael Saylor are now approaching a juncture in time where that decision will be made. Today, MicroStrategy and Saylor control over 1% of Bitcoin in circulation and continue to raise debt to buy more Bitcoin—$2.5 billion worth of debt to finance these purchases. This level of debt poses significant risks, especially if the company faces a downturn in its core business operations or struggles to manage its debt repayments. When a company can no longer service its debts, it generally falls into bankruptcy. How profitable is MicroStrategy at this time? Can they pay their debts back with ease? While they could theoretically sell their Bitcoin holdings, a 1% holder offloading their stake could further depress the price. This represents a catch-22 situation—sell Bitcoin to cover its debts, reduce the price of Bitcoin, become even more insoluble.
At this moment, I am also curious about the custodial aspects of this Bitcoin. How is it secured? Is it in a cold wallet, held in escrow, or stored with a brokerage like Coinbase? Such questions have illuminated potential risks as well. What happens if someone runs off with the Bitcoin? If the company’s business falters and revenues decrease, making debt repayment unfeasible, could an entity claim the Bitcoin being held? I am sure the contractual details address this somewhere, and I intend to investigate further.
Before I end this post, I should remind everyone that if Bitcoin goes higher, well, he could easily sell some Bitcoin to cover his debts and let the rest of it ride higher.
I am sharing all this because it’s a significant trade and moment that has captured global attention. Now, I am off to conduct more research.
Thank you for reading! I hope my posts ignite interesting discussions and thoughts on your end about Bitcoin, investing, and beyond.