Michael Saylor, executive chairman and former chief exec of MicroStrategy, shared some new insights in an interview with George Gammon and private fund manager and commodities analyst Doomberg.
In an hour and a half live discussion on Tuesday, Saylor reiterated his theory that bitcoin is the best hedge against the debasement of fiat currency. Then, he faced a series of tough questions and divulged more information on his decision to go all-in on bitcoin.
As previously reported, Saylor’s major bitcoin bets haven’t exactly paid off this year. It’s estimated he bought a total of 129,999 bitcoins at a dollar cost average of $30,634. Last month, he was down nearly $1.7 billion, or 60.58%.
It’s the first time that Saylor has spoken so candidly about his quest to turn MicroStrategy into a highly leveraged bitcoin bet.
Sad Saylor sails into bitcoin sunset
Before Saylor made the decision to bet big on bitcoin, his company was at an inflection point. MicroStrategy was stuck in a rut with no clear path to growth. Saylor concluded that if he couldn’t move things upwards, it had to shut down. That’s when he turned to bitcoin.
But why bitcoin? And why so much? Saylor explained that his decision centered primarily around the low-interest rate environment of 2020, at a time when the pandemic had induced a massive monetary loosening by central banks, and bonds were returning negative real yields.
To characterize that period, Saylor quoted an infamous speech made that year by Jerome Powell, chair of the Federal Reserve, in which he claimed that the Fed wasn’t thinking about raising rates. At the time, its federal funds rate stood at 0.4% — it now sits at 4.5%. Back then, Saylor explains, he and many others believed Powell and thought that loose monetary conditions and low interest rates were to last for another five years.
Only, “it didn’t turn out that way,” Saylor admitted in the interview. Indeed, it didn’t — economic conditions changed, interest rates went up, and inflation soared. Bitcoin crashed and failed to serve as an inflation hedge while the US dollar rose against everything else.
Today, MicroStrategy sits on a bag of 130,000 bitcoin at a total purchase price of around $4 billion, and a total loss of around $2 billion.
In case of emergency, sell bitcoin
Saylor shared some insight into how MicroStrategy buys and custodies its bitcoin: it uses Coinbase and two other US regulated entities. Only, Saylor remained coy, refusing to mention which ones.
Saylor did, however, assure the audience that these entities are vetted extensively.
According to the chairman, who stepped down from his role as chief exec in August, MicroStrategy has full control of, and access to, the bitcoin against which it borrowed $205 million from Silvergate Capital. Basically, Silvergate can’t physically retrieve its collateral if MicroStrategy defaults on its loan.
This begs the question: how and why did Saylor manage to prevent Silvergate from holding custody of this collateral?
In case MicroStrategy doesn’t have the finances to pay back its loans, Saylor was unequivocal that the firm would sell its bitcoin stacks. He ruled out the prospect of selling more shares in case of an emergency and stressed that his priority would always be to serve the interests of shareholders.
The company’s financial situation was fine, Saylor asserted. He declared that if the firm sold all its bitcoin today, it could pay back all its loans, totalling around $1.7 billion. However, Saylor failed to mention the impact such a massive sell would have on the price of bitcoin.