Michael Saylor’s new calculator predicts no bitcoin crashes, ever
Amid concerns about stock dilution and convertible debt at MicroStrategy (also known as “Strategy”), founder Michael Saylor has invented a new tool to distract financial analysts.
On Monday, he unveiled his latest invention, the BTC Credit Model of MicroStrategy’s debt. The magical calculator forecasts years of sunny days for MSTR shareholders.
Because most investors value MicroStrategy on its bitcoin (BTC) and ability to access ongoing financial leverage, Saylor is particularly concerned with maintaining the creditworthiness of his company.
Unlike most companies, MicroStrategy is simply a leveraged acquirer of BTC and doesn’t make sense based on a net present valuation of its future cash flows.
To that end, Saylor has launched a deceptively simple calculator on the Strategy.com corporate website.
Saylor’s new tool features three adjustable assumptions: the starting price of BTC, ongoing volatility, and long-term price performance.
Below these user-configurable values, a table of MicroStrategy’s outstanding debt appears. Starting with the 2028 convertible series and continuing through notes expiring in 2032, each line of debt updates whenever the user modifies any of the three values.
As a starting point, MicroStrategy owes $8.2 billion in notional debt as of publication time. Going forward, the company also owes a variety of interest payments to debt holders as well as dividends to preferred shareholders.
Covering these obligations is the company’s immense treasury of 592,345 BTC, worth about $63 billion. With few other obligations, this stockpile can certainly cover all of the company’s debt if everything matured today.
To forecast the coverage ratio of its debts into the future, however, Saylor has introduced his self-serving calculator.
Read more: MicroStrategy has lost half its BTC premium in 6 months
Michael Saylor’s magical MSTR calculator
When visiting for the first time, MicroStrategy’s BTC Credit Model webpage opens with generous default values: an annualized 30% rate of return of BTC for seven years and a 50% annualized standard deviation of BTC returns across those seven years to lure in arbitrage traders.
In this bullish scenario, MicroStrategy’s debts with 2028 maturities are covered 62 times over by the company’s current BTC holdings.
Equally cushy, all of the company’s debts through 2032 are fully covered seven times over.
Of course, the bias and shortcomings of this analysis are immediately evident.
First, the calculator’s default values start at astronomical levels. Assuming BTC will return 30% annually through 2032 is mathematically identical to predicting that the price of BTC will rally over $650,000.
In other words, it’s a forecast for BTC’s market capitalization to exceed $13 trillion — more than one-third of US GDP.
Second, the calculator assumes a guaranteed BTC rally for seven years. There is no option to forecast any extended bear market, even though BTC often has multi-year bear markets.
Third, the calculator doesn’t even allow the user to forecast any price decline for BTC. The website outright rejects any attempt to enter a negative value.
Finally, the calculator refuses to acknowledge the risk of liquidation.
Even if a user lowers the price of BTC to the lowest allowable $10,000, the maximum allowable volatility of 95%, and the minimum allowable 0% for annualized return, it forecasts that the current price of BTC will allow the company to satisfy all of its debts with at most 86.91% BTC risk by the year 2032.
Refusing to illustrate the possibility of liquidation
Programmatically prohibited from actually illustrating the risk of true liquidation, this hypothetical BTC risk percentage means that there would be a 86.91% risk that MicroStrategy’s BTC holdings in USD would, at a BTC price of $10,000 with 95% BTC volatility from now through 2032, not fully cover all of its debts at that point.
Furthermore, the simplistic calculator disregards all other aspects of the world and even MicroStrategy’s ongoing business operations, such as the risk of lawsuits, wars, or innumerable other events that could modify the corporation over time.
Read more: MicroStrategy director quietly dumps all his MSTR shares
In the end, liquidity to satisfy MicroStrategy’s outstanding debt is probably not a major factor. With over $62 billion worth of BTC and only $8.2 billion worth of notional debt outstanding, Saylor has plenty of leeway.
Nonetheless, it’s curious that he seems intent on creating web tools that paint an even rosier picture of his company’s standing over time.
By heavy-handedly managing public confidence in his company’s creditworthiness by prohibiting the illustration of BTC bear markets, he seems intent on avoiding suspicions that MicroStrategy could actually face a liquidity crisis in the future.
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