MicroStrategy’s $42B BTC buy gives Ponzi schemes a bad name

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MicroStrategy (NASDAQ: MSTR) is raising $42 billion to inflate the price of the BTC token because if founder Michael Saylor doesn’t pump these bags, who will?  

On October 30, MicroStrategy released its Q3 financial report card, revealing a sharp decline in revenue from its (formerly) core business intelligence software business, while expenses and net losses saw significant increases. Software revenue for the three months ending September 30 fell 10.3% year-on-year, while the rising costs of that revenue resulted in a net loss of $18.5 million.

But who’s kidding? MicroStrategy stopped focusing on its software business when Saylor began his campaign to acquire every BTC out there in the wild. As of September 30, MicroStrategy held 252,220 BTC on its balance sheet, worth around $18.3 billion as of October 29, although BTC’s price has tumbled since then due to uncertainty over the U.S. election outcome (which remains undetermined at the time of writing).

Saylor has been funding his BTC acquisitions with billions’ worth of new equity and debt, but his latest plan is one for the ages. On October 30, MicroStrategy announced a plan to sell up to $21 billion worth of its class A common stock. The proceeds of these sales will be used to (duh) acquire more BTC, based on MicroStrategy’s new self-proclaimed identity as “the world’s first and largest [BTC] Treasury Company.” The initials of that identity, in case you missed it, are BTC. (Guess’ Saylor Hypes Inert Tokens’ was taken.)

MicroStrategy’s software business has a slogan of ‘Intelligence Everywhere,’ although ‘everywhere’ evidently doesn’t include Saylor’s office. Turns out that the $21 billion share sale is only half of Saylor’s ’21/21 Plan,’ which will also see the company raise $21 billion worth of fixed-income securities to (duh) buy more BTC.

On October 29, the day before MicroStrategy announced this 21/21 Suicide Pact, its share price was trading at over $258. By November 4, the price had slid below $222, mirroring the slide in BTC’s fiat price, but we suspect many investors are starting to suspect that the cheese has slid off Saylor’s cracker.

That impression wasn’t helped by MicroStrategy CEO Phong Le revealing on the Q3 analyst call that the 21/21 Plan is based on Douglas Adams’ The Hitchhiker’s Guide to the Galaxy, in which “the answer to the ultimate question of life, the universe and everything is the number 42.”

Le said MicroStrategy believes 42 is “a unique number with some special characteristics. It’s the sum of 21 plus 21, and we all know that 21 is a magic and magical number in the world of [BTC],” given the maximum number of BTC tokens is 21 million. (Louis Farrakhan’s numerology obsession is suddenly looking a lot more rational.)

Returning to this planet, Le celebrated the fact that the proposed $21 billion ‘at the market’ (ATM) equity program is “the largest ATM in the history of capital markets.” To make this magical $42 billion, MicroStrategy aims to raise $10 billion in 2025, another $14 billion in 2026, and a further $18 billion in 2027.

Uh-oh, it’s magic

The hyper-concentration of BTC in the hands of a few—MicroStrategy already holds 1.2% of all the BTC that will ever be—may not be the brilliant strategy Saylor thinks it is and will indeed depend on ‘magical’ thinking that this ‘number go up’ will continue to go up forever.

Saylor’s hyperanimated optimism regarding BTC’s growth potential seems to ignore that he’s largely responsible for the gains that BTC has enjoyed this year. As one confirmed ‘gold bug’ put it, Saylor is the ‘Egg Man’ who doesn’t realize he’s practically BTC’s whole market. 

Two other factors have combined to keep BTC’s price artificially high. First, block reward miners have begun mimicking Saylor’s ‘HODL’ strategy by borrowing hundreds of millions of dollars to buy existing BTC rather than endure the cumbersome (and increasingly unprofitable) process of actually mining new ones.

Second, the BTC spot-based exchange-traded funds (ETF) have seen record inflows as institutional investors followed Saylor down this garden path, hoping to mirror the sixfold rise in MicroStrategy’s year-to-date share price.

However, while corporations are plowing into BTC, the general public appears to have checked out long ago. The Coinbase (NASDAQ: COIN) digital asset exchange’s shares took a pounding last week after its Q3 report showed steep drops in retail customer trading volume following years of peaks, valleys, rug pulls, scams, and fraud.

Retail investors no longer buy the myth that BTC is some kind of ‘safe haven’ from the geopolitical shocks that torpedo traditional financial products. BTC is now rising and falling in lockstep with far more tangible securities and commodities. And given that the overall ‘crypto’ narrative continues to be plagued by scandal and crime, retail customers see little reason to bet their life’s savings on ‘digital gold’ in rigged crypto casinos, particularly when actual gold is at all-time highs.

And yet, hope springs eternal. Some observers with their own bags to pump have been claiming that since retail investors/suckers are traditionally the last to join the party, BTC’s current rally is only just beginning. Apparently, the cliché is true: we’re so early.

I’ll do it again

Bloomberg’s Matt Levine offered a muted defense of MicroStrategy’s capital raising plan, noting that its shares are trading at a 300% premium to the company’s net asset value, and “if people want to overpay you for your stock, sell it to them.”

Other, more critical observers have labeled Saylor’s BTC binge a ‘Stock Market Amplified Ponzi scheme’ in which his BTC buys bid up his company’s share price. Saylor uses that inflated valuation to borrow more billions to buy more BTC, which further pumps BTC’s price, which causes the company’s share price to rise higher, then uses that valuation bump to borrow more cash to buy more BTC, etc.

Saylor himself referenced this strategy on the analyst call, saying, “Volatility is vitality … because we have the volatility, many of the things we do are actually selling the volatility, recycling the proceeds of the volatility back into [BTC].”

This may be the moment to recall the $8.6 million settlement Saylor reached with the U.S. Securities and Exchange Commission (SEC) in December 2000. That settlement was the result of accounting fraud that disguised losses as profits and artificially inflated MicroStrategy’s share price during the dot-com bubble.

Oh, and while Saylor has promoted MicroStrategy as a sort of proxy BTC buy, MicroStrategy’s financial reports contain fine print stipulating that “ownership of common stock does not represent an ownership interest in the [BTC] the Company holds.” Caveat emptor, people.

Don’t be like Mike

Saylor told analysts that BTC “is like the Facebook of money or the Google of money,” ignoring the fact that BTC doesn’t actually function like money. Saylor plans to amass the single largest concentration of BTC and then use that ‘digital gold’ as collateral to borrow real money to use in the real world. So perhaps BTC is more like the Fyre Festival of money, in that it’s shamelessly promoting itself as something it’s most definitely not.

Regardless, Saylor is encouraging, nay, begging other companies to follow his lead and borrow to buy BTC. MicroStrategy’s ‘HODL’ plan “is easy to copy … In time, dozens of companies will realize this, then hundreds, then thousands … we’re happy to share the playbook … We’ll show you how to do it. Everybody can win. There are no losers on the [BTC] standard. There are only varying degrees of winners.” In other words, this time, it’s different.

Other entities are indeed copying Saylor, but in even crazier ways. You can now ‘invest’ in ETFs that track MicroStrategy’s stock performance but also offer leverage to maximize your returns. These pseudo-MSTR’s have posted gains that dwarf those of Saylor’s firm, which will almost certainly prompt more investors to buy in and more copycat ETFs offering even greater leverage.

Incredibly, Saylor approves of this bets-on-the-bettor, telling analysts that they “offer high volatility, high leverage, and they’re built on a [BTC] treasury company that has a large pool of permanent capital and has an adept treasury operation.” If this sounds familiar, recall these words of downstream caution from Selena Gomez in The Big Short. Oh yeah, this will end well. Saylor’s analyst rant went well past its scheduled conclusion, which was convenient since it limited analysts to asking only two questions. One of these questions wondered whether MicroStrategy might someday adopt a different strategy if all this equity-issuing reduced Saylor’s majority control of voting shares to below 50%.

Saylor claimed not to be worried if his share of the vote slid into the mid-to-low 40s range, rather boldly claiming that “there’s nothing that we’re going to do that [other shareholders are] not going to want us to do.” And if there was any serious challenge, he could always “join with” a couple of minor shareholders to ensure “substantially, I’ll have enough voting shares to ensure that the company stays on track.” All aboard the crazy train.

Paranoid, batshit insane, or just criminal?

Saylor’s 21/21/42/90210/867-5309 plan helped shift attention away from the dismal performance of MicroStrategy’s software business—which may soon be obsolete due to AI’s relentless rise—but also from some recent Saylor comments that seriously irked the crypto faithful.

In a late-October interview on Markets with Madison, Saylor slammed “paranoid crypto-anarchists” for expressing concern at the thought of storing one’s digital assets with Wall Street institutions such as BlackRock (NASDAQ: BLK), Fidelity (NASDAQ: FNCMX), JPMorgan (NASDAQ: JPM), and the like. Saylor claimed that entrusting control of your BTC to these entities was a safer bet than assigning custody to less familiar private entities or self-custody via a digital hard wallet.

Reaction was swift and harsh, with prominent figures such as Ethereum co-founder Vitalik Buterin calling Saylor’s comments “batshit insane” for “explicitly arguing for a regulatory capture approach to protecting crypto.” Stung by the backlash, Saylor tweeted the next day that he supported “self-custody for those willing & able.”

But some other quotes from the same interview have yet to be walked back, including the claim that, unlike those crypto-anarchist scofflaws, BlackRock, MicroStrategy, and other publicly listed firms “will reliably file and pay their taxes.”  

This quote came just five months after Saylor paid $40 million to atone for what the District of Columbia called the largest income tax fraud recovery in D.C. history. The D.C. Attorney General noted that Saylor had “openly bragged” about his tax-evading tactics, encouraged his friends to do likewise, and said “anyone who paid taxes to the District was stupid.”

We eagerly await Saylor’s next settlement, which will presumably quote him saying ‘anyone who bought into MicroStrategy’s BTC plan’ was equally delusional.  

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