Michael Saylor Bet Billions on Bitcoin and Lost

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If you ask

Michael Saylor

why he bet the future of his company on bitcoin, he’ll tell you he didn’t have a choice.

In 2020,

MicroStrategy Inc.’s

MSTR 14.21%

stock was stagnant, and the tech company struggled to compete with software giants. “We were either going to die a fast death, or a slow death, or embark on a risky strategy,” he said.

He opted to buy bitcoin—lots of it. That decision backfired, badly. On Tuesday, MicroStrategy announced Mr. Saylor would step down as CEO, a position he has held since 1989, amid mounting losses tied to bitcoin.

His dalliance with bitcoin began on Aug. 11, 2020 when the company announced a plan to take $250 million—half of its corporate reserve—and convert it into bitcoin. It has since doubled down, and doubled down again.

In total, MicroStrategy raised $2.4 billion in debt and loans. It issued $1 billion in equity. The company used it all to buy bitcoin.

For a time, the decision appeared to be working. The price of bitcoin rose from about $11,900 in August 2020 to nearly $69,000 by November 2021. MicroStrategy’s stock rose from $124 the day before its announcement to a record high of $1,273 on Feb. 9, 2021.

Michael Saylor speaks during a bitcoin conference in April while fund manager Cathie Wood listens.

Photo:

Marco Bello/Getty Images

But on Tuesday, MicroStrategy announced its seventh quarterly loss in the eight quarters since it started buying bitcoin. This time the loss was big: $1 billion, much of that from bitcoin.

The same day, the company announced

Phong Le,

the company’s president, will take on the additional role of CEO. Mr. Saylor took on the role of executive chairman.

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MicroStrategy shares were down 49% year-to-date through Tuesday, and 78% from its record high.

The company is sitting on nearly 130,000 bitcoins worth roughly $3 billion at current market prices. Its market capitalization is $3.1 billion. Essentially, MicroStrategy has become a bitcoin-holding vehicle with a cash-generating software business attached to it.

MicroStrategy’s losses reflect the volatility of bitcoin. Under accounting rules, the company must assess the value of its bitcoin holdings each quarter and take an impairment charge if the price has declined. MicroStrategy has taken a string of such charges totaling about $2 billion.

The bitcoin strategy turned Mr. Saylor into one of bitcoin’s most visible proponents. His twitter feed, followed by 2.6 million, is a constant stream of pro-bitcoin quips.

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He is uniformly bullish in interviews. In one, he advised people to “take all your money and buy bitcoin. Then take all your time, figure out how to borrow more money to buy more bitcoin. Then take all your time to figure out what you can sell to buy bitcoin.”

He similarly advised a conference room full of crypto enthusiasts in Miami to never sell their bitcoin.

It’s this very philosophy that has worried some market observers.

“MicroStrategy is not an ideal investment for most traders,” said Oanda analyst

Edward Moya.

For one thing, Mr. Moya said, MicroStrategy’s strategy was only to buy and hold bitcoin. There was no profit taking. There also was no hedging against the inevitable volatility and tumbles. When the selloffs came, MicroStrategy was exposed to the full breadth of them.

Michael Saylor at his home in Annapolis, Md.

Photo:

Alyssa Schukar for The Wall Street Journal

Another problem is that the company doesn’t have many more ways to get more money to buy more bitcoin, said BTIG analyst

Mark Palmer.

“A lot of the levers MicroStrategy could have pulled to create more capacity have been pulled,” he said. “Now it’s just using the cash flow from the software business.”

Still, Mr. Palmer said, the ultimate judgment on MicroStrategy’s bitcoin bet won’t come until some of that debt it borrowed to buy bitcoin starts to mature. If the price of bitcoin languishes, the company is going to have problems paying back its creditors, he said.

“The ticking clock is the maturity of the MicroStrategy debt,” he said.

Despite the risks and the criticisms, Mr. Saylor still believes in his strategy, and bitcoin. In an interview last week, he noted that the stock is still well above its pre-bitcoin levels, and believes the strategy has raised the company’s profile, despite the risks attached to it.

“I feel better about it today than I did on the day we started,” he said.

He says he will continue to head MicroStrategy’s bitcoin investments. He has no plans to sell any bitcoin, and still expects it to gain in value over the years. The company reiterated Tuesday it has no plans to sell any bitcoin.

Mr. Saylor said swapping the CEO roles had been a long-term plan. “The new executive structure means I can even more enthusiastically focus on communications and strategy and bitcoin advocacy and evangelism,” he said.

Write to Paul Vigna at paul.vigna@wsj.com

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