6079 Smith W

Jun 23, 2021

11 min read

MicroStrategy survived Michael Saylor’s first downfall; it will not survive the second

Michael Saylor’s obsessive embrace of the BTC token may achieve his long-held desire to earn a spot in the history books, just not in the way he imagines.

I wasn’t in Florida for the recent Bitcoin Miami conference, although I checked out some of the action online. As the event progressed, I was reminded of a scene from the 2004 German film Downfall — no, not that scene, although Max Keiser’s, um, high-spirited antics did have me wondering if he’d suddenly start screaming about General Steiner failing to attack the Russians as ordered.

No, the Downfall scene going through my head appears shortly after Hitler’s muted 56th birthday celebrations in his Berlin bunker. As Der Führer goes back to planning his increasingly imaginary defense of the city, his paramour Eva Braun organizes an impromptu party on the Reich Chancellery’s ground floor for some of the bunker’s lesser luminaries, with lots of champagne, dancing and denial.

At one point, a Russian shell explodes nearby, causing the lights to flicker and the record player to stop playing. Much of the gaiety drains from the partygoers’ faces, but Eva rather maniacally insists that everyone keep dancing. The others duly comply, while Eva gets up on a table, solo dancing in a scene more reminiscent of Weimar-era Berlin. Then another shell lands even closer, blowing out the room’s windows. Everyone retreats to the bunker and the party is well and truly over.

he Miami shindig featured an equally failed attempt at keeping unpleasant realities from crossing the threshold. As the festivities got underway, BTC was trading at around US$37,000, well off its nearly $65,000 peak two months earlier, leaving many attendees crying into their diamond hands as their moon rocket proved incapable of escaping reality’s gravitational field.

The gains that BTC had enjoyed were in part due to Tesla founder Elon Musk’s surprise February announcement that his company had stealthily acquired around $1.5 billion worth of BTC and that Tesla would accept BTC as payment for the company’s products. BTC Maximalists cheered, hailing Musk as their new lodestar.

Those cheers turned to boos a couple months later after Musk backtracked, saying Tesla wouldn’t be accepting BTC as payment due to concerns over its environmental impact, sparking a major BTC selloff (including by Tesla, which saw fit to cash in some gains ahead of Musk’s reversal). Then, on the opening day of Bitcoin Miami, Musk tweeted a meme that appeared to suggest he was breaking up with BTC and the selloff accelerated.

In a matter of weeks, Musk went from hero to zero in the eyes of BTC Maxis, and the ire directed his way was vividly illustrated during a fireside chat Keiser conducted in Miami. Pacing the stage like a caged tiger — or the dance-crazed girlfriend of a German dictator — Keiser exhorted the crowd with repeated cries of ‘Fuck Elon!’ and ‘We’re not selling!’

tanding mutely onstage during Keiser’s conniption was Michael Saylor, founder of business intelligence company MicroStrategy (MSTR) and latter-day BTC whale. Saylor appeared a bit unnerved by the crowd’s response to Keiser’s incitement, like an anthropologist who’d been living among an unfamiliar tribe for a while but was only now grasping the occasionally feral nature of their mating rituals.

Saylor was something of a conference celebrity due to his recent high-profile conversion to BTC Maxi. In July 2020, MicroStrategy announced plans to use around $250 million of the cash then sitting on its balance sheet to buy a variety of ‘alternative investments or assets,’ with BTC cited as just one of the assets potentially up for grabs.

But just a couple weeks later, MicroStrategy revealed that it had spent the whole $250 million to buy over 21,000 BTC, and that BTC would now serve as the company’s ‘primary treasury reserve asset.’ In October, MicroStrategy revealed that it had to date spent $425 million buying a total of 38,250 BTC. In December, MicroStrategy raised another $650 million to boost its BTC stack to over 70,000 tokens.

In February 2021, MicroStrategy issued another $1 billion in debt and added nearly 20,000 more BTC. By June, MicroStrategy had completed another half-billion offering, the proceeds of which were used to push its total BTC holdings over 105,000. As we speak, Saylor is probably giving blood at a local clinic, with the $35 payment destined to buy more BTC.

Until Musk’s May tweet, Saylor’s BTC binge had helped push the token to its all-time high valuation and Saylor came off looking like a visionary (albeit a self-serving one). Saylor’s willingness to double-down on his BTC strategy after the token lost nearly half its value enhanced his ‘GigaChad’ status among BTC Maxis, although other observers began to view Saylor more like a casino gambler chasing his losses at the craps table at 3am.

he BTC token has become a meme stock, its valuation based not on fundamentals but on perception, able to be swung one way or the other by a well-timed tweet. Robbed of its functionality by the Bitcoin Core developers and reduced to a lump of ‘digital gold,’ BTC now serves no other purpose but as a placeholder for transactions conducted on proprietary Layer 2 ‘solutions’ run by the likes of Blockstream.

The Miami conference agenda reflected this functional impotence. Lots of panels devoted to ways of not using your BTC as peer-to-peer electronic cash (as Bitcoin was described in its 2008 white paper) The conference even devoted an entire day to celebrating so-called crypto ‘whales,’ aka BTC’s new gods, who preach the inerrant doctrine of HODL.

Saylor’s plans for his BTC stack are equally inert, declaring that he intends to HODL for at least 100 years. He’s likened BTC to owning blocks of Manhattan real estate that one can use as collateral to borrow fiat (aka ‘real’) money with which to fund more tangible money-making projects.

Yet a glance at the MicroStrategy investor relations press site shows that, from the genesis of Saylor’s public BTC obsession in July 2020 through June 2021, the company failed to issue a single release about any new product rollout or enhancement of its existing software. MSTR has become, in the words of one analyst, “now mainly a direct play on the price of BTC with little leverage from the underlying software business or future debt financing.”

That view is reflected in the price of MSTR stock. For years, MSTR traded around $120, moving as infrequently as a Victorian housewife lying back and thinking of England. That changed after Saylor announced he was all-in on BTC. The stock peaked at over $1,300 in early February, sunk back to around $470 by May, ultimately rebounding to its current value of around $550. In other words, alternately soaring and plunging in lockstep with the BTC rollercoaster.

In stark contrast, Musk’s Tesla is setting new quarterly sales records and his SpaceX continues to push the boundaries of commercial space launches and satellite communications. Musk has numerous other irons in the entrepreneurial fire, many involving pioneering areas of technology, the success of which will virtually ensure his place in the history books.

Saylor can boast no such record, with his non-MSTR success stories largely based on some profitable domain name squatting. In recent weeks, Saylor has been telling anyone who’ll listen that MicroStrategy’s core business just had its best quarter ever. That would indeed be good news, as the company’s revenue has fallen steadily every year since 2014.

In January, Saylor said his BTC strategy had made MSTR “a thought leader in the cryptocurrency market and generated great interest in MicroStrategy as a corporation.” In stating so, Saylor may have inadvertently exposed the primary engine behind his BTC obsession — to once again be thought of as someone whose opinion matters, one of the individuals who will go down in history as ‘the ones who knew.’

But Saylor’s BTC binge may have an even more cynical aim: ensuring that when it comes time to write his obituary, the narrative isn’t entirely dominated by his dot-com downfall.

any BTC fanboys probably have only the vaguest notion that Saylor was considered a ‘thought leader’ over two decades ago, as growing public acceptance of the internet led to the infamous dot-com bubble and the crash that followed.

MicroStrategy was one of the bubble’s highest flyers, its stock going from $7 to $333 in the course of a single year. In the process, the media painted Saylor as the enlightened ambassador of this brave new technological world, an image Saylor did little to discourage. A New Yorker article of the day captured his waning sense of humility: “I feel that if I don’t succeed, it’s an abomination in the eyes of God.”

In 2002, the Washington Post did a four-part, 14,000-word profile that detailed pre-crash Saylor’s growing sense of messianic purpose. He resented the idea that anyone might view MicroStrategy as a mere software company, saying there was a “higher purpose” in what he was trying to accomplish.

But many MicroStrategy employees felt Saylor’s higher purpose was simply pushing the stock price higher (and as majority MSTR shareholder, his net worth along with it). Staff said Saylor would check the stock price several times a day, knowing “precisely where the stock had to go for him to be a billionaire, or 10-billionaire.” A true man of the people, Saylor “would casually walk around the office talking about how many paper millions he’d just made as he ate lunch.”

Apart from riches, Saylor delighted in his newfound status as a digital seer, once observing that “Heaven for me is a microphone and a captive audience.” Saylor’s hubris grew to the point that he boasted of his ability to “bend reality through sheer force of will.”

But MSTR was also bending reality by fudging the financial figures it released every quarter. The company was prone to backdating deals, booking revenue not yet generated to ensure MSTR met analysts’ expectations. The key was to make it seem that, as far as MSTR was concerned — foreshadowing alert — its numbers only went up.

The chickens came home to roost when the company’s previously accommodating auditors at PwC raised concerns over MSTR’s accounting practices. Saylor was in the middle of an investor roadshow ahead of a planned $2 billion stock offering when he was told MicroStrategy would have to restate its earnings. Saylor opted to continue the roadshow while trying to convince PwC that everything would be just fine.

The Post reported that MicroStrategy held a board meeting on March 19, 2000 at which a securities law expert detailed the potential ramifications of the company’s financial sleight of hand. At some point, Saylor interrupted the expert, declaring that the expert wasn’t saying anything that Saylor didn’t already know. The expert reportedly responded by saying “if you know all this, then you’ve ruined your company.”

With Saylor finally grasping that the jig was up, MicroStrategy announced the following day that its 1999 profit of $12.6 million was actually a loss of between $34.3 million and $40.3 million, while the 1998 numbers also had to be revised to show a net loss. The stock fell from $226.75 to $86.75 in a single day.

Worse was to come, as the US Securities and Exchange Commission opened a fraud investigation, eventually striking a deal in which Saylor and two other MicroStrategy execs paid fines of $350,000 each, while Saylor was required to surrender $8.3 million in ‘ill-gotten gains.’ The day the deal was signed, MSTR stock closed at $15.38.

While the MicroStrategy implosion is considered one of the catalysts of the wider dot-com crash, MicroStrategy had an actual business at its core, meaning the company didn’t completely vanish like so many other dot-com hype machines. But Saylor’s status as a business titan and visionary was well and truly toast. As Saylor confessed to the Post, he’d been invited to the White House 10 times between 1999 and early 2000, but not once since.

So, while MicroStrategy endured, Saylor’s ability to command the public stage didn’t. For the better part of the two decades that followed, the spotlight eluded Saylor, even as his sense that he was destined for greatness remained intact. The 2002 Post series concluded with Saylor telling the reporter that he would be “better prepared for my next life, whether it’s in politics or whatever.”

ack at the Miami conference, as Keiser brought the faithful to their feet with his cries of ‘Fuck Elon,’ Saylor didn’t appear all that eager to bash the Musk piñata, possibly due to the suspicion that Musk wouldn’t give a damn.

No doubt it is of some annoyance to Saylor to know that Musk can move the BTC valuation up or down seemingly at will, while Saylor’s June 21 announcement of the purchase of 13,000 more BTC did little to arrest that day’s roughly 10% decline in the token’s value.

Musk enjoys this power despite BTC occupying a far smaller slice of his overall attention than Saylor’s, as well as BTC representing a significantly smaller share of Tesla’s financial picture than the existential investment made by MSTR.

If BTC ever achieves that stratospheric $100,000 valuation — and manages to hold that value for longer than a week — Saylor may achieve his long-desired status as a crypto sage. But even if BTC continues to decline — whether through regulatory crackdowns or investors simply realizing the technology’s lack of real-world functionality — Saylor might earn immortality all the same.

Even BTC fan-boys were a little unnerved by the video debate Saylor had this spring with Fiore Group CEO Frank Guistra, in which Saylor urged investors to “take all your money and buy Bitcoin, then take all your time to figure out how to borrow more money to buy more Bitcoin, then take your time to figure out what you can sell to buy more Bitcoin.” Saylor went on to urge individuals to mortgage their homes or businesses to buy BTC.

Again, if BTC ever gets to the moon, Saylor will look like Nostradamus. But if BTC tanks, that clip will become as infamous as Jim Cramer’s on-air insistence that struggling investment bank Bear Stearns “is not in trouble. I mean, if anything, they’re more likely to be taken over. Don’t move your money from Bear. That’s just being silly. Don’t be silly.”

In case anyone needs reminding, Bear Stearns ceased to be five days later. Cramer’s TV career managed to survive that debacle, but Saylor may not survive BTC’s comeuppance.

aylor famously dismissed BTC in December 2013, tweeting that the technology’s “days are numbered.” Saylor’s Damascene conversion since that tweet may have had less to do with any new research Saylor conducted and more to do with his inability to achieve his quest for immortality through his primary business venture.

It’s said that a drowning man will grab onto anything, even the point of a sword, if he believes it will keep him from disappearing under the waves. With MicroStrategy back to being a mere software company, Saylor may well view BTC as his last chance at (metaphorically) staying afloat.

But Saylor’s increasingly messianic BTC promotion could do untold damage to any number of smaller investors, who never sought anything more than a modest bump in their net worth. Next time you hear Saylor’s scornful dismissal of any BTC criticism, remember that he personally signed off on those fraudulent MSTR earnings reports and continued his investor roadshow even as he realized the regulatory walls were closing in.

Saylor is now closer to 60 years old than 50, yet his boyish bangs appear to grow further down his forehead every day. It’s too bad that Saylor was already a wealthy man when his BTC buying began in earnest, otherwise the more traditional ways of dealing with a midlife crisis — buying a new sportscar, say — might have spared countless small investors from following Saylor down the road to ruin.