As crypto markets surged late Monday, Michael Saylor’s software firm saw its Bitcoin stash in green for the first time since June 2022. At the time of writing, BTC is trading at $30,070, above MicroStrategy’s average purchase price of $29,803, giving the company a small buffer of a few hundred dollars.
MicroStrategy scooped up more Bitcoin over the last month, lowering its average purchase price. The company added 6,455 BTC to its holdings between February 16 and March 23 and then bought another 1,045 BTC between March 24 and April 4, the company’s executive chairman and former CEO Michael Saylor announced on Twitter.
However, some experts believe that the recklessness of Saylor’s wager may once backfire for MicroStrategy. On April 8, Hal Press, the founder and CEO of the crypto-focused investment fund North Rock Digital, criticized the company’s foray into Bitcoin, saying that it would have to eventually sell all its holdings.
“It’s not gonna happen anytime soon (multiple years minimum IMO), but eventually every single one of Saylor’s coins will need to be sold,” Press replied to a tweet by Bitcoin Magazine that stated that MicroStrategy now owns one out of 150 Bitcoin that will ever exist. “When the time eventually comes, it will be a career making short.”
“The idea of taking a software company and levering it to the gills to run a ‘Bitcoin acquisition strategy’ is so comically stupid it’s actually quite funny. Will be so obvious in hindsight,” he added.
Even so, not everyone agreed with Press’ grim assessment. As some Twitter users pointed out, as long as Bitcoin’s price goes up, Saylor can safely borrow against his BTC collateral infinitely, only selling whatever he needs to pay back his loans.
Indeed, this seems to be Saylor’s reasoning too. As he put it during the Bitcoin 2021 conference in Miami, “What I was doing with Bitcoin, I don’t want to decapitalize the company. I want to keep the capital or grow the capital, but I also want to put an asset on the balance sheet. And I think a big breakthrough is that I can convert my cash from a liability to an asset,”
“And then we realized if that asset is going to go up by more than 10% a year and you can borrow money at 5%—or three or four or two—then you should borrow as much money as you can and flip it into the asset. Why wouldn’t you?”
Still, the assumption that Bitcoin will steadily add more than 10% every year doesn’t seem particularly brilliant, especially in terms of risk management. Granted, Bitcoin experienced some incredible gains throughout its history, but it also had a couple of years when its value declined — and a bearish scenario may be a serious threat to Saylor’s “always long BTC” strategy.
Even more, if the company is forced to sell some of its Bitcoin under extreme pressure, the very fact of Saylor selling is enough to spook the market and cause a further BTC price decline.
In June 2022, Michael Saylor took off to Twitter to assure investors that there will be no margin call on MicroStrategy’s $205m bitcoin-backed loan taken from Silvergate Bank in March, as his company’s shares fell sharply on speculations that such a scenario is imminent should Bitcoin drop below the $21,000.
MicroStrategy fully repaid its loan to Silvergate on March 27, less than a month after the lender announced the wind-down of operations and voluntary liquidation of the bank.