Bitcoin ‘Maximalist’ Saylor Makes Crypto His Only Job

Michael Saylor’s new job looks a lot like his old job: adding bitcoin to the balance sheet of his business-software company with religious fervor.

“I’m a bitcoin maximalist, I happen to believe that bitcoin is an instrument of economic empowerment, it’ll be beneficial to eight billion people,” Saylor told Forbes in an interview. “I also happen to believe that bitcoin is unique,” he continues, because of “the Immaculate Conception, decentralization, and its commodity status. All of these things make it the superior asset in the space.”

The Immaculate Conception he means is the founding of bitcoin, as explained in a 2008 white paper by one or more people using the name Satoshi Nakamoto. Saylor stated that bitcoin is the only crypto asset which is truly decentralized and without an issuer. He backs bitcoin as a corporate investment in part because he believes there is regulatory agreement among U.S. regulators that bitcoin is a commodity and falls under the Commodity Futures Trading Commission’s jurisdiction. There is debate about whether various other cryptocurrencies are securities and thus fall under the Security and Exchange Commission’s purview, as that agency has stated.

“The vast majority of the other cryptos are unregistered securities,” Saylor said. “They have an issuer, they will pass the Howey Test and so if you’re going to invest in an equity type instrument, you’re really a venture capitalist. We’re not investing as venture capitalists, we don’t want to take that kind of risk. In addition to the technical risk, the competitive risk, you also have regulatory risk, the uncertainty of not knowing how they’ll be treated.”

Saylor has turned the analytics business he founded into a leveraged bet on bitcoin, with a stash worth about $1.9 billion and total debt of $2.7 billion. For Microstrategy’s first bitcoin purchase in 2020 the company used $250 million of its capital to buy the cryptocurrency. Then the company borrowed $2.4 billion and sold $1 billion of equity to fund its subsequent bitcoin investments.

The concept has been good to Microstrategy’s stock price, up 159% to $319 a share since bitcoin purchases began in 2020, though down 60% from the $816 peak it reached when the crypto was at its all-time-high on November 10. Yet the bitcoin strategy hasn’t done anything for the bottom line; the last net profit Microstrategy recorded was in Q3 2020.

Last week the company posted a $1.06 billion loss for Q2, mostly attributable to a $918 million loss on its crypto holdings. Still, unlike automaker Tesla
TSLA
, which winnowed its bitcoin hoard, Microstrategy revealed that it had added $10 million worth in the period. It also announced that Saylor would turn over CEO duties to CFO
CFO
Phuong Le, who will mind the software store. Saylor becomes executive chairman and is in charge of bitcoin strategy.

He must be okay with the switch. The company founder controls 68% of its voting power through his class B shares, though he has only 4% of the publicly traded class A, according to Microstrategy’s April proxy statement.

Before taking the crypto plunge, Microstrategy shares had produced average annual returns of about 13% since coming public in 1998, almost twice the gain of the Standard & Poor’s 500. The company’s software helps clients gather and manage data related to their businesses, but its annual revenue plateaued between $500-$600 million over the past decade. Additionally, Microstrategy struggled to grow in a market crowded with larger rivals like Microsoft
MSFT
and Oracle
ORCL
.

“In the 2017 timeframe, we decided that we were going to spend a lot more money to grow, and we channeled hundreds of millions of dollars into sales and marketing and growth initiatives,” Saylor says. “What we found is, it doesn’t matter how much money you spend, it doesn’t move the needle.”

In order to save his business, Saylor felt Microstrategy needed to take a risk. He chose to go for crypto gold.

The software business remains profitable, bringing in $22 million net cash from operations over the past six months. However, that figure is down from $76 million over the similar period in 2021. Expanding the software operation is now Le’s job.

Bitcoin’s
BTC
bad year put a dent in the Microstrategy balance sheet. After the dust from the crypto decline settled, liabilities outweigh assets in Q2 for the first time since 2003, resulting in $187.1 million of negative shareholder’s equity.

Little light was shed on finances during the company’s quarterly earnings call. For the question-and-answer session, Shirish Jajodia, Microstrategy’s director of investor relations, read out questions from unnamed analysts, an unusual format.

While the financial benefits may be dubious, the bitcoin bet has certainly launched Microstrategy – and Saylor – into the public eye. His bitcoin-focused Twitter account has amassed 2.6 million followers, and he regularly appears in the media to speak as an advocate for the original cryptocurrency.

“Nobody wants to talk about business intelligence. If I were to tweet nonstop about business intelligence, then that engagement would fall off dramatically, because the average person doesn’t buy enterprise business-intelligence software,” Saylor said. “The average person is concerned about macroeconomics, politics, digital assets, crypto freedom.”

In addition to growing his personal audience, Saylor stated that bitcoin drives public engagement with Microstrategy. The company’s trading volume is also heavily impacted by investor interest in bitcoin.

“The majority of the enterprise value of the company is now attributable to the bitcoin strategy,” Saylor says. “The bitcoin strategy doesn’t have a full-time employee. I represent bitcoin. It’s not a labor-intensive business or an activity-intensive business; it really is a capital-intensive business.”

Since Microstrategy’s first bitcoin purchase in 2020, the company has funneled revenue from its software business into purchases, according to Saylor. In March, Microstrategy also took a $205 million loan from crypto-focused Silvergate Bank to buy more bitcoin, using existing holdings as collateral. If bitcoin falls below $21,000 – it’s under $24,000 now – that could trigger a margin call, but Saylor has said the company’s loan is 10x
ZRX
overcollateralized and has plenty more on its balance sheet to cover if necessary. Revenue from the software business is also used to pay interest on the Silvergate loan.

Beyond the financial benefit of the strategy itself, the company’s status as a way to gain bitcoin exposure on a traditional financial market makes capital-raising easier, “I don’t have to beg people to invest in MicroStrategy
MSTR
stock,” Saylor said.