MicroStrategy… whatsit?
If I asked the question “what is MicroStrategy” in 2019, most likely nobody in the cryptocurrency space would know the answer without a quick trip to Google. 2021: if you’re learning about MicroStrategy from me for the first time, you only ‘think’ you know crypto.
Let’s start at the start
MicroStrategy is a tech company focused on intelligent data analysis. The founder and CEO, Michael Saylor created the business to design software that allows companies to run analytics on their internals and externals to make efficient and effective strategic choices. You might say that they use Saylor’s unique flavor of strategy, coded in microprocessing. Something tells me that might have helped in the naming of the company.
Michael Saylor… whodis?
Michael Saylor founded MicroStrategy in 1989. It grew quickly over its first years, and he took the company public in 1998. They’ve done a lot of other cool stuff over the years, but we’re not really here to deep-dive the company itself. We’re a little more interested in Saylor’s strategy when it comes to bitcoin. The two are intertwined.
Some say that the 2008 housing crisis was the impetus that inspired Satoshi to pursue his vision that led to the white paper for bitcoin. Depending on whether you believe ‘who’ Satoshi is, this may or may not be the case. One can see that many of the earliest bitcoin adopters certainly shared in the belief that the world needed a better money, and the only way for that to happen was by removing the middle-men, and thus reducing the need for trust. Since the banks couldn’t be trusted, and yet they were too big to fail, neither could we trust the agencies designed to ‘protect us’ from fraud or the governments that provided assurances to them all, sound money needed to be fair money, and this meant the only way to trust the money, was to remove the need for trust in any other human being or entity.
Enter 2020, and a similar eye-opening came to Michael Saylor. As a graduate from M.I.T., I’m sure you can escape smart but clueless, but in Saylor’s case, he embodies a smart combo of mathematical brilliance and instinct. Some things can’t necessarily be taught, but this is a case where smarts, bravery, instinct, and having a lot of practical know-how meets the willingness to take great risk. History will speak to whether Saylor has made the right moves in bitcoin, but I have a strong feeling that if he fails, it won’t be because he was wrong, but rather because he drastically underestimates the government’s willingness to overreach it’s bounds. Let’s hope Saylor ends up being the hero of this story.
2020 showed Michael Saylor that the world’s leaders were not prepared to properly manage practical spending in the midst of a global pandemic, and as the spending continues to spiral out of control, the truth, though hidden from the masses, is that drastic inflation has been taking place to a degree that has never been measured in history. This becomes an important lesson in economics, but even then, the fascinating thing, is that people will still be led by their political persuasions first and foremost, when considering what has actually happened with the numbers. I’ll come back to some of the underlying theory in a second. Mark my words (for those old or schooled enough, irony built-in for your pleasure).
Saylor’s concern, was that no matter how successful his company, their earnings were depreciating at an unsustainable value, due to the depreciating value of the dollar. Normally, I cringe at the mere use of the word ‘unsustainable’ as it has come to mean some rather unsavory things in my lifetime, again at the hands of political tyrants. But this time, in the word’s truest sense, whether people like it or not, the U.S. dollar is still the ‘fiat’ standard by which all values are coordinated around the world.
When, not if but when, the United States’ foolishness in leadership and fiscal irresponsibility leads to China’s yuan overtaking the dollar standard, many will long for a time when we valued the stability and long-suffering of the dollar as an asset. The fundamentals of the dollar, once it was no longer backed by a gold standard or any asset other than use and trust, became susceptible to lessons in economic theory. Unfortunately, there are truths beyond these theories, but you’ll never get two people in the room who are knowledgeable to make sound policies that prevent what has happened. As long as denial is a denominator, printing more money when a system has outgrown its budget, causes the value of that asset’s purchasing power to drop. Many people remain gleefully ignorant of this, because after all $1 = $1. You don’t see it directly, initially, in the dollar itself, but everything that can be purchased with a dollar will rise in cost: an important distinction, cost, not value.
Many things can happen as a result of inflation, but the first usually is denial. The government responsible for inflation will lie, kick the can a few miles down the road, print more, and provide an illusion that there’s plenty of money for spending in the areas an administration wishes. More money for roads? No problem. More for education, welfare, Covid welfare, equality “stuff”, sure no problem! But, as these things, whatever they may be, continue to get their funding, there is a mass averaging in the difference between the true value of things, and their cost. You notice the price of groceries rising steadily, but $1 is still $1 and you still earn the same wage. Injustice! Raise the minimum wage, and now you are exactly where you started, because you make more, but everything costs more. But then, the cost continues to rise, but there’s no more raises to go around. Inflation is where you see the diminishing returns of a money source that becomes diluted in supply. The best way to measure the real devaluation of the dollar is in necessary assets that are a store of value. Think the 30% hike in real estate.
We have all learned about supply and demand, but depending on the school of economics to which one subscribes, many are clueless in how this applies. Some will look at demand rising when goods are scarce, rightfully meaning that the price of rare, desired items goes up, while mass-produced items are common, and people aren’t willing to overspend for a lack of uniqueness.
This brings us around to an interesting metric: often if you look at the right stocks in the market, you can see the signs of the real impact of inflation. Our governments are trying to pretend we are well within the safe balance of GDP growth and spending, but in truth numbers that cannot exceed 0.5% are actually growing to a shocking real case inflation of more than 27%. This is the kind of thing MicroStrategy knows, and knows well. Remember, they study all the data points. They do it well enough to double earnings time and time again for the software they provide to clients.
So, when Saylor looks at the signs of drastic inflation, it turns his interest to an invention that had the correct economic theory applied, and the light bulb turned on. Bitcoin is the answer to combating the crushing effect of inflation. Over time, I’m likely to cover many a topic as it relates to Michael Saylor, and let’s hope his confidence in bitcoin is on target. If it is not, then the options for lifeboats and economic independence are essentially over in our lifetime. In this case, Saylor clearly is the type to cease the moment when a truth appears to him, and in many ways, again unless something derails terribly, I view him as a modern economic hero. In a niche of crypto that needed a leader, he has probably risen as one of the best.
So, what is Michael Saylor’s plan with bitcoin?
In fact, Saylor feels so strongly about bitcoin being one of the only true solutions to combat extreme inflation that he has created a series of videos instructing other companies how to implement its use in their structure. For MicroStrategy, Saylor’s intentions are clear; accumulate as much bitcoin as possible. When cash comes in, he converts it to bitcoin. He’s leveraged his purchasing power to acquire more bitcoin, and is even restructuring shares in MicroStrategy to get even more bitcoin. This strategy includes spreading cash reserves among shareholders and simply put; acquiring as much bitcoin as possible.
In his own words
There’s no better way to explain Saylor’s analytics than to hear it directly from him:
“Our investment in Bitcoin… seeks to maximize long-term value for our shareholders… reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash… as a significant addition to the global financial system… as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy. MicroStrategy spent months deliberating to determine our capital allocation strategy. Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ― risks that should be addressed proactively… the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty. We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.”
For MicroStrategy, the plan is a bold one, exchanging confidence in the dollar for what most still perceive as a risky, emerging asset class. Crypto is still under fire from numerous countries, and individual politicians, showing more ignorance than actual economic position, warn against its heavy drain on the environment, use in illegal activity, and means for allowing people to avoid reporting capital gains. In truth, it is becoming clear to the smarter people in the room, that the greatest risk lies in fiat.
Another extremely risky, but brilliant part of Saylor’s strategy, is leveraging the now more than 105,000 bitcoins to borrow against for the short term fiat cash flow needed to pay employees and outbound expenses. By exchanging dollars for bitcoin as a safer store of value, he borrows at a low interest what is needed to operate their company, paying this back at extremely low rates. Over time, bitcoin has trended steady growth from 20-200%, not only hedging against the dollar’s constant depreciation, but in essence protecting the fruit of one’s labor from actually leaving profits at a deficit.
Clearly if bitcoin fails, or more accurately, governments succeed in blocking its use, it will be a devastating blow for MicroStrategy and the many who are following Saylor’s guidance in how to structure bitcoin into their businesses. Time will tell, but something gives me the sense that now more than ever, going all in on the right strategy, instead of diverifying into more traditional options, could be the only ‘right’ direction to go.
And on that note, crypto Gordon Freeman, the free man… out.
ttps://www.microstrategy.com/en
