MicroStrategy: All Hype or Unstoppable Bitcoin Giant?

Summary

Market Mondays: MicroStrategy – All Hype or Unstoppable Bitcoin Giant?

Release Date: January 11, 2025
Host/Author: EYL Network
Episode Title: MicroStrategy: All Hype or Unstoppable Bitcoin Giant?

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Introduction

In the January 11, 2025 episode of Market Mondays, hosted by the EYL Network, financial enthusiasts are treated to an in-depth discussion between the hosts from Earn Your Leisure and stock market expert Ian Dunlap. The episode delves into the intriguing case of MicroStrategy, a company renowned for its substantial Bitcoin holdings, sparking debates on whether it is merely riding the hype or establishing itself as an unstoppable force in the Bitcoin ecosystem. The conversation is enriched by real-time input from live callers, offering diverse perspectives on investment strategies and the volatile nature of cryptocurrency markets.

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MicroStrategy’s Bitcoin Strategy: A Double-Edged Sword

The centerpiece of the discussion revolves around MicroStrategy's aggressive investment in Bitcoin. Michael Saylor, the company's CEO, is often lauded for pioneering this strategy, and the episode critically examines its sustainability and implications.

A caller initiates the conversation by sharing a personal investment experience related to MicroStrategy:

“I put an option call MicroStrategy last week because it was down like 30%… I was down 40 on my option call… I just had a feeling. It just the eye test.”
[02:48]

This anecdote highlights the high-risk, high-reward nature of investing in MicroStrategy's stock, which is intrinsically tied to Bitcoin's performance.

Michael Saylor responds by acknowledging the risks and nuances of options trading:

“Averaging down in options trades is…I mean, it takes this.”
[02:45]

He doesn't directly endorse or discourage the caller's strategy but underscores the complexities involved in such investment maneuvers.

---

Understanding MicroStrategy’s Unique Position

The hosts and callers dissect why MicroStrategy's stock continues to attract investors despite the inherent volatility of Bitcoin. Ian Dunlap provides a comprehensive analysis:

“What he's effectively done is he's found a way for people to lay off their volatility risk on him in exchange for dollars. So Bitcoin is inherently volatile, and he's basically saying, I will eat that volatility, and in exchange for your capital, I'll pay you an interest rate.”
[04:10]

This strategy involves MicroStrategy issuing debt to acquire Bitcoin, thereby offering investors a return in exchange for bearing the volatility risk. Dunlap elaborates further on MicroStrategy's financial instruments:

“As of last week, I think they just launched a perpetual preferred, which is a class of stock. It's not common stock. It's got capped upside, but it pays a yield as though it's a bond and it's perpetual, meaning there's no maturity date.”
[05:00]

This innovative approach allows MicroStrategy to continuously raise capital by issuing securities that appeal to investors seeking non-traditional yield sources, despite the dilution effect on existing shareholders.

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The Premium Dilemma: Trading Above NAV

A significant point of discussion is why MicroStrategy's stock often trades at a premium to its Net Asset Value (NAV), a rarity on Wall Street where similar assets typically trade at a discount.

Dunlap confesses his perplexity:

“I don't understand why it's trading at a premium. So Grayscale went…examples where closed-end funds trade at a discount to NAV…somehow MicroStrategy is at a massive 2 or 3x premium to its holdings.”
[09:00]

This premium suggests that investors are not just valuing MicroStrategy's Bitcoin holdings but are placing significant trust in Michael Saylor’s strategic vision and the company's ability to sustain and grow its Bitcoin assets. Dunlap draws parallels with historical financial products, emphasizing that such a premium challenges conventional Wall Street norms.

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Institutional Interest and Market Dynamics

The episode also explores the role of institutional investors in sustaining MicroStrategy's market performance. Dunlap notes:

“He has big institutions, These are sophisticated buyers buying the debt that his company is issuing…it's extraordinary because…you do have a lot of institutions that are looking for yield from non-traditional sources.”
[05:30]

These institutions are attracted to MicroStrategy's unique value proposition, seeking exposure to Bitcoin without directly investing in the cryptocurrency itself. This symbiotic relationship supports both MicroStrategy's growth and the broader acceptance of Bitcoin as a legitimate asset class.

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Comparative Analysis with Other Bitcoin Investment Vehicles

Dunlap contrasts MicroStrategy with other Bitcoin investment products, particularly Grayscale's GBTC:

“Grayscale had the first publicly traded Bitcoin trust vehicle…Grayscale's product…they sold it down to its NAV and then it kept on going through the NAV…when they got approval to convert to an ETF, it shot right back up to NAV.”
[08:00]

He initially presumed that MicroStrategy's relevance would diminish with the advent of spot Bitcoin ETFs but acknowledges that the company's stock performance defied expectations by gaining momentum and inclusion in the S&P 500.

“My assumption was that when the ETFs came out a year ago, there would be no more demand for MicroStrategy stock…I could not have been more wrong in that assumption.”
[06:41]

This unexpected resilience suggests that MicroStrategy offers unique value beyond mere Bitcoin exposure, possibly due to its strategic maneuvers and the founder's influential reputation.

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Personal Insights and Learning Curves

Acknowledging his position as a learner, Dunlap shares his ongoing quest to understand MicroStrategy's strategy:

“I'm like you. I'm reading the news, I'm trying to like mentally understand what's going on…I'm a student, not a teacher. I'm not ashamed to say that.”
[06:30]

His humility underscores the complexity of MicroStrategy's financial strategies and the evolving landscape of cryptocurrency investments. Despite not having all the answers, Dunlap emphasizes the importance of staying informed and being critical of prevailing assumptions.

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Callers’ Perspectives and Cautionary Tales

The conversation includes vivid examples from listeners who have engaged in aggressive trading strategies linked to MicroStrategy, serving as cautionary tales:

“I got…this is pretty heavy…Highly, yes.”
[02:35]

Another caller shares a successful turnaround after significant losses:

“I gained 80 in one day, actually. So now I'm up 10. Highly unrecommendable.”
[02:54]

These real-life stories highlight the emotional and financial rollercoaster associated with high-stakes investments in volatile assets like Bitcoin and stocks like MicroStrategy.

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Michael Saylor’s Vision and Future Outlook

In a candid moment, Michael Saylor reflects on his strategy and the broader implications for investors:

“I don't fully understand why people are willing to pay a premium for the value of the Bitcoin that MicroStrategy owns, but they are…I'm still learning. I don't fully understand…so I'm fascinated by MicroStrategy and Michael Saylor and I'm following it every bit as closely as you guys are.”
[07:00]

This admission by a company leader reveals the dynamic and sometimes unpredictable nature of cryptocurrency markets, where even seasoned experts continually adapt and learn.

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Conclusion: Navigating the Hype and Reality

The episode concludes without definitive answers, emphasizing the uncertain future of MicroStrategy’s Bitcoin-centric strategy. Dunlap posits that trust in leadership and innovative financial products can create unique investment opportunities, even in the face of traditional market skepticism.

“I'm a student, not a teacher because I never would have seen that coming and I still don't understand it to this day. So I'm fascinated by MicroStrategy and Michael Saylor and I'm following it every bit as closely as you guys are.”
[09:30]

Listeners are encouraged to approach such investments with caution, continuous learning, and a critical mindset, recognizing both the potential rewards and inherent risks.

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Key Takeaways

1. Innovative Strategy: MicroStrategy’s approach to leveraging institutional debt to invest heavily in Bitcoin sets it apart in the financial landscape.
2. Premium Trading: The company's stock trading at a premium to NAV challenges traditional Wall Street norms and underscores investor confidence in its strategic direction.
3. Institutional Support: A steady interest from sophisticated investors seeking non-traditional yield sources bolsters MicroStrategy's market position.
4. Volatility and Risk: High-risk trading strategies, especially those tied to volatile assets like Bitcoin, can lead to significant gains or losses, as evidenced by callers’ experiences.
5. Continuous Learning: The podcast highlights the importance of staying informed and adaptable in the rapidly evolving cryptocurrency market.

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Notable Quotes

• Caller on Options Trading Loss:
  “I'm down 40 on my option call on the call…this is pretty heavy.”
  [02:35]

• Dunlap on MicroStrategy’s Premium:
  “Every single one of them ends up trading at a discount to NAV…somehow MicroStrategy is at a massive 2 or 3x premium to its holdings.”
  [09:00]

• Michael Saylor on Investor Trust:
  “If you don't know who you are, the stock market is a really expensive place to find out.”
  [03:18]

• Dunlap’s Humility:
  “I'm a student, not a teacher…I never would have seen that coming and I still don't understand it to this day.”
  [07:00]

---

Final Thoughts

The Market Mondays episode on MicroStrategy offers a nuanced exploration of a company at the intersection of traditional finance and the burgeoning cryptocurrency world. By dissecting MicroStrategy's strategies, investor behaviors, and market dynamics, the hosts provide listeners with a comprehensive understanding of the potential and pitfalls of such an investment. Whether MicroStrategy is all hype or truly an unstoppable Bitcoin giant remains an open question, inviting investors to weigh the insights shared and make informed decisions in their investment journeys.

Transcript

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[Caller]

Conditions 18 + strategy right? Respectfully so.

[Michael Saylor]

Michael Saylor oh, you guys like it? You guys like, like MicroStrategy or no?

[Caller]

Here's the thing. I think that Micro strategy is, is at least for now, tied to Bitcoin success. And I think Bitcoin is going to have a successful year. That's just my personal opinion. So I hadn't I put an option call MicroStrategy last week because it was down like 30%. Once again, not what you would recommend. Highly unrecommendable in this whole scenario, but it's an interesting case study. So it was down 3%. I'm like, I think this is a good buy. And then it went down another 20. And so I was down 40 on my option call on the call, okay Friday. And you know, just learning math. Like when I became a financial advisor, I realized that if you have like a hundred dollars, right? And you drop to 50, that's a 50 loss. Right? But it's going to take 100 gain to get back up to $100, right? Because a 50 gain on that only gets you to 75. Yeah. So I'm like, I'm down 40. I got. This is pretty heavy.

[Michael Saylor]

And you want to know should you sell the coal?

[Caller]

Well, no, I bought. I bought more.

[Michael Saylor]

Oh, you did all right.

[Caller]

I doubled down on the call.

[Michael Saylor]

I didn't know you were gully like that. Unadvisable.

[Caller]

Highly unadvisable. Highly, yes.

[Michael Saylor]

Averaging down in options trades is. I mean, it takes this.

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[Caller]

But no but. So I gotta finish the story. So nap. And I gained 80 in two days. So now I'm up. I get 80 in one day, actually. So now I'm up 10. Highly unrecommendable. But I just had a feeling. It's just the eye test.

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[Caller]

So. Okay.

[Michael Saylor]

Right.

[Caller]

Can we tell the truth about Michael one day? It won't be today. But, Josh.

[Michael Saylor]

We have a saying on Wall street that if you don't know who you are, the stock market is a really expensive place to find out. Rashad, what little I know about you is that you have nerves of steel. I know you're an iceman. I know you've. You've not. It's not just that you cultivate that Persona on social media. I know that is what you. What you really are. And I know that from your friends who. Who. Yo. Rashad is different. Okay? Most people can't do what you're doing.

[Caller]

Unrecommendable. That's unrecognizable, for sure.

[Michael Saylor]

Most people will lose their. Will lose their. Down 40.

[Caller]

That's a fact.

[Michael Saylor]

So I. Broadly speaking, though, Mike. So I'm not. I don't trade. I don't trade options. So I. I don't. I don't really have a comment on that strategy. Michael Saylor. I will tell anyone who wants to listen that I don't fully understand how these transactions were or I understand how they work mechanically. I don't understand why they keep working so effectively. What he's done. And it's brilliant whether I don't know how. Where it ends, but, like right now, it's brilliant. What he's effectively done is he's found a way for people to lay off their volatility risk on him in exchange for dollars. So Bitcoin is inherently volatile, and he's basically saying, I will eat that volatility, and in exchange for your capital, I'll pay you an interest rate. So he's got big institutions, These are sophisticated buyers buying the debt that his company is issuing. As of last week, I think they just launched a perpetual preferred, which is a class of stock. It's not common stock. It's got capped upside, but it pays a yield as though it's a bond and it's perpetual, meaning there's no maturity date. So it just lives forever. Publicly traded, you could buy or sell it in the, in the secondary market. So he's found buyers for instruments tied to his Bitcoin treasury publicly traded security. And they keep buying it. And every time they buy more stock from him or more bonds from him, he gets capital and he, and of course it's dilutive what he's doing to the shareholders, but they don't care about the dilution because he's taking that money and plowing it into Bitcoin. And I think he has half a million bitcoin now. I think he's450,000 bitcoins. He just, he just passed Blackrock. Okay, so it's extraordinary because you do have a lot of institutions that are looking for yield from non traditional sources. Well, this definitely qualifies as non traditional. And then you have a lot of people who want to have exposure, leveraged exposure to Bitcoin in their brokerage accounts. Here's where I truly can tell you. I don't know anything. My assumption was that when the ETFs came out a year ago, there would be no more demand for MicroStrategy stock because now you could just buy BlackRock or any one of 11 publicly traded spot Bitcoin ETFs in your brokerage account. You don't need to buy MicroStrategy anymore. You don't need that exposure coming from a corporation that's hoarding Bitcoin.

[Caller]

The volatility.

[Michael Saylor]

I could not have been more wrong in that assumption. Look at what the stock price has done over the last year. It's, it's now in the S P500. So I don't know anything. So I'm. Guys, I'm like you. I'm reading the news, I'm trying to like mentally understand what's going on. And I'm talking to people, I'm listening to other people talk as it pertains to most things Bitcoin. I'm a student, not a teacher. I'm not ashamed to, to say that out loud. I know a lot of people are and I'm still learning. I don't fully understand why people are willing to pay a premium for the value of the Bitcoin that MicroStrategy owns, but they are, they are. Most of these types of vehicles end up with the ticker with the price being a discount. So I come from the 1900s. I don't know if you know that about me. That's how long I'm doing it. Okay. I'm from the 1900s. We used to sell closed end bond funds to investors and those traded at a, a discount to the nav 99 of the time. We used to sell municipal bond closed end funds. They traded at a discount to the value of the bonds themselves.

[Caller]

Because I think that's what, that's what he's selling his, his thing as is that bitcoin is an extremely volatile asset, which is good if you want outsized returns. And his thing is it tracks bitcoin, but it's even more volatile.

[Michael Saylor]

No, I get that. I still don't understand why it's trading at a premium. So Grayscale went. Grayscale had the first publicly traded bitcoin trust vehicle. But GBTC, other than MicroStrategy and Riot Blockchains and Mara, there was like no other way for traditional financial people in a brokerage account to get bitcoin exposure. So they bought Grayscale, which was trading at first at a huge premium to the value of the bitcoins it held in the trust. And then as Coinbase became more popular and Robinhood started trading crypto people didn't need Grayscale's product anymore. So they sold it down to its nav. And then it kept on going. It dropped through the nav. And then there was one point where it was a 30% discount, which is when the hedge funds bought it up. And then when they got approval to convert to an etf, it shot right back up to par value or right back up to Navy. That was a brilliant.

[Caller]

Navy is really quick if they don't.

[Michael Saylor]

Know net asset value. So literally, Ian, if you tell me my publicly traded company holds $100 million worth of Bitcoin, if your, if your stock were to trade at that nav, it would have 100 million dollar market cap straight up. If it trades above that, it's a premium to the nav and if it trades below that, it's a discount to nav. My point that I'm trying to make to you guys is that every product I've ever seen on Wall street that looks like a closed end fund where it just holds assets, but it has its own ticker symbol, every single one of them ends up trading at a discount to nav. Somehow MicroStrategy is at a massive 2 or 3x premium to its holdings. And I think that speaks to the army of people who just have so much belief in Michael Saylor's ability to continue to expand the strategy and maybe they'll be right. I've just I'm telling you I'm a student, not a teacher because I never would have seen that coming and I still don't understand it to this day. So I'm fascinated by MicroStrategy and Michael Saylor and I'm following it every bit as closely as as you guys are. I just don't have anything anything worth saying about its future price because I already don't get it.

[Caller]

So safe to say you're not recommending.

[Michael Saylor]

It to the portfolios. No, I don't own. I don't own any microstrategy, but I own the S and P so I guess I do, right?

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