Has Michael Saylor discovered the Holy Grail of finance with his Bitcoin Strategy? Or is he following in the footsteps of John Law, poised to burst the largest financial bubble of our time? Even Bitcoin’s most fervent fans must admit that MicroStrategy bears some unsettling parallels to the Mississippi Company.
Less than a month has passed since Michael Saylor announced his audacious plan to purchase $42 billion worth of Bitcoin over the next three years. Since then, MicroStrategy has acquired 78,980 bitcoin for a total of $6.63 billion (in two rounds of 27,200 and 51,780 bitcoin). On Monday, the company announced a new convertible bond issuance of $1.75 billion at a zero percent interest rate, which was oversubscribed by $850 million, and likely being deployed into the Bitcoin market as we speak.
At this pace, Saylor will hit the $42 billion quota well before the three years are up—likely within a year or perhaps even within six months. Capital markets are firmly on Saylor’s side. Appetite for MicroStrategy’s stocks and convertible bonds is insatiable at the moment.
MicroStrategy’s stock has soared to $474, up an astounding 592% this year, (as of Wednesday’s market close). By contrast, Bitcoin has risen a mere 113% since New Year. Since Saylor decided to make Bitcoin the company’s reserve currency in 2020, its market value has skyrocketed from $1 billion to over $100 billion. Even Saylor’s harshest critic, gold bug Peter Schiff, acknowledges that MicroStrategy is currently in a golden spiral. But can it last?
Bitcoin Scarcity: Saylor’s Urgency to Front-Run Institutional Investors
Saylor is a man on a mission—and he’s in a hurry. There aren’t many bitcoin left. Bitcoin has a hard cap of 21 million coins, a limit that will be reached around the year 2140.
To date, 94.2% of all bitcoin have already been mined. Less than 6% remains. Of that, over half—3.13%—will be mined in the four-year period between the most recent halving this year and the next one in 2028. In the halving cycle from 2020, when Saylor adopted the Bitcoin standard, to 2024, 6.25% of all bitcoin were created.
Saylor has emphasized this repeatedly. It’s only now that Bitcoin is truly becoming a scarce resource. Over the next three and a half years, as many bitcoin will be mined as in the following 112 years. Saylor has taken this to heart and is under pressure to secure enough coins before it’s too late.
One could also view this as MicroStrategy, with its relatively limited balance sheet, front-running the wave of bitcoin purchases that Saylor anticipates from wealthy families, institutional investors, sovereign wealth funds and nation-states in the years to come—not least from the U.S. strategic Bitcoin reserve expected to be built under President Trump.
Venture investors love the cliché that even an exponential graph looks flat in the beginning. With Bitcoin, it’s the opposite: a logarithmic graph that rises steeply at first flattens out before you realize it.
MicroStrategy’s Bitcoin Alchemy: How Saylor’s Strategy is Turning Debt into Digital Gold
So far this year, MicroStrategy’s Bitcoin trades have delivered a Bitcoin “yield” of 41.8%. This means ~79,130 Bitcoin have been “created” for the company’s shareholders, equivalent to ~246 Bitcoin per day—for free. Ex nihilo. Pulled out of thin air. Acquired without the costs, energy consumption, or capital expenditures typically associated with Bitcoin mining. In other words, MicroStrategy’s issuance of new shares to buy more bitcoin has not had a dilutive effect but an accretive one for its existing shareholders.
This is digital alchemy. How is it possible?
As Saylor explained in a speech on the crypto landscape following Trump’s election victory, MicroStrategy has on average paid just 82 basis points in interest on the debt it has issued to buy Bitcoin. For the latest convertible bonds, the rate was 0%. Zero point zero (so astonishing we almost break all principles and throw in an exclamation point—almost).
The answer is simple: MicroStrategy offers investors exposure to Bitcoin without the accompanying volatility. In return, investors are willing to pay a premium over Bitcoin’s spot price. This price premium benefits MicroStrategy’s existing shareholders by increasing their bitcoin holdings per share.
Does this sound like a bad deal for bond investors? Not necessarily. If they aim to maximize returns, they should buy MicroStrategy stock, which has outperformed Bitcoin—with higher volatility. MicroStrategy stock is practically Bitcoin with leverage.
However, if the goal is decent risk-adjusted returns with moderate upside and limited downside—as is often the case for debt investors—MicroStrategy’s convertible bonds have been excellent investments. As long as Bitcoin’s price and MicroStrategy’s stock continue to rise, they will remain good investments. For example, MicroStrategy’s 2017 convertible bonds are trading at 170% of their face value. This explains why debt investors are willing to lend Saylor money at no cost. MicroStrategy securitizes Bitcoin for investors with different risk profiles.
Is MicroStrategy Overvalued? Understanding Its Bitcoin Premium
But is there a good reason for MicroStrategy to be valued at more than three times the market value of its Bitcoin holdings, while its legacy software business pales in comparison? Opinions differ.
Saylor argues that focusing on the premium over net asset value misses the point. He compares it to saying an oil company should be valued solely based on the value of its reserves, ignoring its operations.
There’s an argument that MicroStrategy should be valued based on a price-to-earnings multiple of the increase in bitcoin per share—the company’s «earnings,» so to speak. By this measure, MicroStrategy has earned around $7.5 billion this year and is valued at a conservative P/E multiple of 13.
Still, not everyone buys this argument. Less than a year ago, MicroStrategy was priced without any premium over the net asset value of its underlying bitcoin. The case for a NAV multiple of three or higher depends on whether the company’s bitcoin purchases will continue to be accretive for shareholders. This is a bold assumption, especially in the long run.
MicroStrategy’s Bitcoin Bet: Will the Price Keep Rising?
The crux of the matter is whether Bitcoin’s price continues to rise. If it does, MicroStrategy’s Bitcoin holdings could continue to grow sky-high like a digital Tower of Babel.
If Bitcoin collapses, however, it could be game over for MicroStrategy in no time. Yet, Saylor has weathered storms before. He defied critics and survived the 2022 crypto winter, a crisis he might now be grateful for as it allowed him to accumulate cheap bitcoin. But the stakes have risen. With more favourable capital markets, MicroStrategy is plowing billions into Bitcoin at a pace far exceeding the past four years. This also means the company’s average cost basis is rising rapidly.
What happens if Bitcoin’s price falls below MicroStrategy’s cost basis again and its convertible bonds no longer show a profit? Time will tell.
Saylor does not seem to be worried about this. Nor does he appear concerned about losing control over the company as new shares are issued. His only worry seems to be that MicroStrategy might not be able to secure enough bitcoin.
For now, all arrows point upward. But the crypto market has likely not seen its last Minsky moment. Saylor may live to see another stress-test of his motto: “Volatility is life,” as he did in 2022 and when the dot-com bubble burst in 2000.
Could Michael Saylor’s Bitcoin Strategy Fail?
Some argue that Saylor himself has become a single point of failure for Bitcoin. He and MicroStrategy may represent Wall Street’s capture of Bitcoin—which some call an “institutional legitimacy paradox,” where Bitcoin is co-opted by the very intermediaries it was designed to circumvent. With 331,200 Bitcoin, MicroStrategy owns about 1.6% of the 21 million coins that will ever exist—a significant amount, but probably not enough to become a single point of failure for Bitcoin’s protocol or the wider cryptocurrency market.
Even if Saylor maxes out the $42 billion quota, he likely won’t surpass Satoshi Nakamoto’s 1.1 million coins. Some believe MicroStrategy won’t even reach half a million. If Saylor falls and MicroStrategy goes bankrupt, it’s unlikely a bankruptcy trustee would dump all the coins (although John J. Ray III did precisely that in the case of FTX), crashing Bitcoin to zero. If that happens, Saylor may be finished, but Bitcoin will endure.
John Law and the Mississippi Bubble: Lessons for Bitcoin Investors
The author does not think Michael Saylor is an idiot. But when markets become as euphoric as they have in recent weeks, it’s worth pausing to ask: Have we seen this before? How could this go wrong?
The parallel that comes to mind is another financial acrobat who was celebrated in the 18th century before his house of cards collapsed: John Law.
John Law did not have Bitcoin. But he had something investors in the early 1700s held equally high expectations for: land in French Louisiana.
Law was the son of a Scottish goldsmith. But like Saylor, he was not seduced by precious metals. Sentenced to death by hanging after a duel in London, Law fled to France. Against all odds, he rose to become Louis XV’s finance minister, founding head of what became France’s first central bank—first Banque Générale, later Banque Royale. On top of this, he became the director of the Mississippi Company, which enjoyed a royal monopoly over all trade with the vast territory known as French Louisiana. In return, the company assumed the entirety of France’s national debt, in exchange for annual payments from the Crown
Law merged this company with the kingdom’s other trade monopolies in Senegal, East India, and China, creating what was collectively known as the Compagnie Perpetuelle des Indes.
John Law’s Lesson
Under Law’s system, the Mississippi Company and the central bank became closely intertwined, and eventually merged. Bondholders could convert their government bonds into shares of the Mississippi Company. By 1719, Law’s Banque Royale had turned on the money printers, issuing paper money not backed by gold but by the king’s good name and reputation, as well as implicitly the presumed wealth that would flow from America.
The Mississippi Company’s stock price soared so high that the French dictionary added a new word: millionaire. Investors of all classes risked everything they had—and didn’t have. Everyone got rich, at least on paper. And the French Crown’s debt problem seemed solved.
Academic economists today see Law as a pioneer of modern monetary systems. But his house of cards collapsed in 1720. The fabulous wealth of French Louisiana didn’t materialize. Investors realized they had bought air. Law fled in disgrace and died in poverty.
Saylor’s Fate
Will Saylor suffer the same fate? That may sound a far-fetched proposition in these exuberant times. Bitcoin is the antithesis of Law’s paper money. Saylor undoubtedly knows the story of the Mississippi Company better than most.
Yet, there are striking similarities between the Mississippi Company and MicroStrategy. Both rest on the promise of owning the world’s best asset—which have “no second best,” as Saylor puts it. In the 18th century, it was land in the New World. In the 21st century, it’s digital property in cyberspace: Bitcoin.
While French Louisiana eventually exceeded Louis XV’s wildest dreams, it was long after Law’s bubble had burst, the French Revolution had decapitated the monarchy, and Napoleon sold the territory at a bargain to the Americans. America was not a bubble, but the Mississippi Company was. Similarly, even if Bitcoin isn’t a bubble, MicroStrategy might be. Sorry, Saylor.
