Source: Nina Bambysheva, Forbes
MicroStrategy is not only a massive Bit bet, but also a revolution in corporate financing.
Most people view the billionaire Michael Saylor's public company MicroStrategy as a huge and risky Bit bet. But a closer look reveals it is a masterpiece, a blueprint for manipulating traditional finance to harness the magic dust of the crypto frenzy.
New Year's Eve at the Villa Vecchia was a dazzling scene of orange and gold, straight out of Fitzgerald's most lavish fantasies. Over 500 people crammed onto the manicured lawn of the century-old mansion, whose Versailles-style ballroom has hosted the likes of Margaret Thatcher, Henry Kissinger, and Mikhail Gorbachev.
The real reason for this party was Bit breaking $100,000 (not the arrival of 2025). Servers circulated with silver trays of champagne, canapés bore the ubiquitous B logo, dancers in gold bodysuits waved glittering orange orbs in homage to Bit's signature colors. In the center of the garden, a giant playing card was barely visible, the king's face replaced by an unabashed B.
The water party continued aboard the Usher, a 154-foot superyacht that had appeared in the 2015 film "Entourage," glittering against the Miami skyline. Shuttle buses ferried a constant flow of Bit executives, thought leaders, and most importantly, institutional investors, all decked out in "Bit fashion" (orange suits, B-logo accessories). Two giant projectors played clips predicting Bit would reach the millions, while a DJ in a spacesuit commanded the bass-heavy soundtrack between swaying palm trees.
"I'm a little tired of the feeling of winning," joked one reveler wearing a black cap emblazoned with Satoshi Nakamoto. The party-goers all had crypto cred: the Satoshi-capped man was David Bailey, the 34-year-old CEO of BTC Inc. and publisher of Bit Magazine, who hosted the Bit Conference in July where Donald Trump vowed to make America the "crypto capital of the world" and establish a national Bit reserve.
The host and owner of Villa Vecchia, Michael Saylor, 59, weaved through the revelry in his signature black blazer, blue jeans, and a T-shirt (with a B. on the front). He graciously accepted handshakes and selfie requests. Here, Bit is God, and Saylor is its prophet.
Crypto is Saylor's second coming, after he made and lost over $10 billion during the first internet bubble. That was when, fresh out of MIT in 1989, he co-founded the software company MicroStrategy in Tysons Corner, Virginia. The company initially focused on data mining and business intelligence software, later clashing with the SEC over accounting practices. In 2000, the company paid a fine and settled with the federal government, restating its financials for prior years.
For the next two decades, MicroStrategy's sales performance was lackluster, with a market cap hovering around $1 billion. That all changed in 2020 when Saylor decided to make Bit the core of MicroStrategy's strategy.
Last year, as the SEC approved Bit ETFs from giants like BlackRock and Fidelity, crypto prices soared, more than doubling in 12 months and breaching $100,000 in early December. Just before Christmas, MicroStrategy joined the Nasdaq-100, spurring more demand for its stock, which surged over 700% last year as it issued debt and accumulated more Bit (it now holds 471,107). Saylor's company is now the largest institutional holder of digital assets, second only to the elusive Satoshi, who is said to own 1 million Bit. Over 2024, Saylor's net worth rocketed from $1.9 billion to $7.6 billion. Within a month into the new year, it reached $9.4 billion.
MicroStrategy's astounding gains have provoked a backlash of critics and shorts who can't fathom how a small software company holding just $480 million in Bit could be worth $84 billion. But what Saylor's critics fail to grasp is that MicroStrategy has ingeniously straddled two realms: one constrained by traditional finance rules, where the company issues debt and equity traded by hedge funds, traders, and other institutions; and another ruled by true, steadfast believers who think Bit will bring them a better world.
The driving force behind MicroStrategy's success is embracing and cultivating volatility, a hallmark of its core asset. Volatility is the enemy of traditional investors but the friend of options traders, hedge funds, and retail speculators, making MicroStrategy one of the most actively traded stocks. While its annual revenue is relatively modest at $496 million, its daily trading volume rivals the seven tech giants (Meta, Apple, Alphabet, Microsoft, Amazon, Tesla, and Nvidia).
"People think it's crazy, how can such a small company have such high liquidity?" Saylor said. "It's because we've placed a crypto reactor in the middle of the company, attracting capital and then spinning it. This increases the stock's volatility, making our options and convertible bonds the most interesting and best-performing products in the market."
Michael Saylor is 100% right about the popularity of the $7.3 billion in convertible bonds the company has issued since 2021. Every trading minute, MicroStrategy's stock price is amplified in real-time by Bit's constant fluctuations, increasing the implied volatility of the call options embedded in its convertible bonds. Unlike regular bonds, convertible bonds offer debt holders the security to choose to convert their bonds into MicroStrategy stock at a predetermined price before maturity. Every trader trained in the Black-Scholes option pricing formula knows that higher implied volatility increases the value of options. So Saylor can issue convertible bonds with virtually no interest cost.
So far, MicroStrategy has issued 6 convertible bonds maturing from 2027 to 2032, with rates ranging from 0% to 2.25%. In the public bond market, liquidity has been drying up due to the boom in private credit, and institutional investors are hungry for outsized returns. MicroStrategy's bonds are not only one of the few avenues for large investors like Germany's Allianz and US Bank of America to gain exposure to digital assets, but also some of the best-performing bonds, returning over 250% since issuance. Even MicroStrategy's $3 billion 5-year 0% coupon bond issued in November, with a strike price of $672 (80% above the current stock price), has already surged 89% in just a few months.
Volatility is Vitality
These three words, tweeted by MicroStrategy co-founder Michael Saylor last March, reveal the elixir driving the outperformance of the company's stock and bonds: the implied volatility of its options, fueled by the Bit he has amassed. Many traders crave volatility, expecting MicroStrategy's stock to fluctuate over 90% in the next month, compared to 60% for Tesla and 30% for Amazon.
He Yi understood that institutional investors who measure performance on a quarterly basis would continue to buy his high-risk stocks in order to boost the returns of their investment portfolios. Companies like MicroStrategy that issue large amounts of convertible bonds often dilute the company's stock, but in this case, the convertible bonds had a bullish effect because they represented demand for increasingly valuable stocks in the future. Through secondary offerings and convertible bond issuances, MicroStrategy's outstanding shares have grown from 97 million to 246 million since 2020. During the same period, its stock price has surged 2666%. At the end of January, its shareholders voted to significantly increase the company's authorized shares to 10.3 billion.
"They found a monetary loophole in the financial markets and exploited it," marveled Richard Byworth, a former convertible bond trader at Nomura Securities and managing partner at Syz Capital, an alternative investment firm in Zurich.
He Yi makes no secret of his reverence for Bit. Last August, he invented a novel financial metric called Bit Yield or BTC Yield. This "yield" is unrelated to any income generated, but rather measures the percentage change over time of the company's Bit holdings relative to its fully diluted share count. His initial target was 4% to 8% annual growth, but MicroStrategy's data released in January showed a Bit Yield of 48% in Q4 and 74.3% for the full year 2024 - staggering numbers that are meaningless, which he dangled like bait to his worshipful followers.
Ben Werkman, a former commercial banker, consultant and early investor in the company's Bit strategy, said trying to value MicroStrategy using old-fashioned methods "will just make you lose your mind." He Yi "turned off the profit and loss mindset and said, 'We're going to look at the company's net assets and focus on leveraging our advantages on the balance sheet,' which in this case means acquiring more Bit."
That is exactly what MicroStrategy is doing. In October, He Yi announced a plan called "21/21" to raise up to $42 billion over the next three years (half through equity financing, half through debt financing) to buy more Bit. In November and December alone, the company acquired nearly 200,000 Bit worth about $18 billion.
"Scale is everything because liquidity is everything. MicroStrategy is the single largest source of liquidity for trading Bit-related risks, including the spot market and the options market, the latter of which is more important."
Unless the apocalypse truly comes, MicroStrategy should be fine. Bit would need to crash more than 80% from its current over $100,000 level and stay there for at least two years for MicroStrategy to be unable to service its current debt. He Yi has once again demonstrated his talent for leveraging capital markets and bond investors' behavior.
The $7 billion in debt issued by MicroStrategy is all unsecured, and technically none of the Bit in its treasury can be used as collateral. Moreover, at the company's current stock price of $373, its over $4 billion in debt is already "in the money," or effectively equity.
"Effectively, MicroStrategy has very little debt on its balance sheet," said Jeff Park, head of alpha strategies at the San Francisco-based crypto asset manager Bitwise, noting that MicroStrategy's Bit holdings are unlikely to be forcibly liquidated because institutional bond holders have a high tolerance for refinancing, even in a worst-case bankruptcy scenario.
What's stopping other companies from replicating He Yi's Bit financial engineering? Nothing. Many companies have already started to follow suit. According to Park, Bitwise has tracked around 90 publicly traded companies, including well-known names like Tesla and Block, that have added Bit to their balance sheets. In March, his firm will launch the Bitwise Bit Companies Index ETF, which will track a Bit-weighted index of 35 companies holding at least 1,000 Bit (about $100 million) each. MicroStrategy will dominate that index.
The imitators are providing ammunition for MicroStrategy's detractors. Kerrisdale Capital, an investment firm based in Miami, released a short report on the stock in March, arguing that MicroStrategy stock represents a rare and unique way to gain exposure to Bit, but that ship has sailed. But Park believes that, like Netflix in the streaming space, MicroStrategy's first-mover advantage and scale make it stand out.
"Scale is everything because liquidity is everything. Whether it's the spot market or the options market, they are the most liquid sources for trading Bit-related risks," Park said, "MicroStrategy's options market is the deepest single-name options market in the world so far." MicroStrategy's frenetic options activity has even spawned a fund called the YieldMax MSTR Option Income Strategy ETF, which generates income by selling call options and has accumulated $1.9 billion in assets in its first year with a 106% return.
Sitting poolside at his villa in Wikia, his three parrots Hodl, Satoshi and Max squawking in the background, He Yi brushes off his critics. "The conventional business wisdom of the past 40 years has been that capital is a liability and volatility is bad. The Bit standard says capital is an asset and volatility is good - it's a feature," he insists, "They live in a flat world, a pre-Copernican era. We're sitting on a 60-mile-an-hour train, spinning a gyroscope with 30 tons of mass on top of it, while the rest of the world stands still on the tracks."
This is not the first time Michael Saylor has flown close to the sun.
Born in 1965 on an Air Force base in Lincoln, Nebraska, he was steeped in military discipline from an early age. His father was a chief master sergeant, and the family bounced between Air Force bases around the world before settling near Wright-Patterson Air Force Base in Ohio, the home of the Wright brothers' aviation school.
He earned a full ROTC scholarship to study aerospace engineering at MIT, writing a paper on computer simulations of Renaissance city-states. In his spare time, he played guitar in a rock band and piloted gliders. He graduated with highest honors in 1987 and was commissioned as an Air Force lieutenant, but his fighter pilot dreams were grounded by a heart murmur that turned out to be a misdiagnosis.
When 1 + 1 = 3, by doubling down on Bit, MicroStrategy's market cap grew 60-fold in 4 years, even with Bit prices languishing.
At age 24, he co-founded MicroStrategy with fraternity brother Sanju Bansal. At the time, few understood the potential of data analytics, but the company was an early mover in the field. Riding the internet boom, it went public in 1998 and by 2000 its market value had soared to over $24 billion. Saylor's net worth peaked at nearly $14 billion, and he became a tech evangelist, prophesying a world where data would flow like water. "We're going to use our technology to eliminate the entire supply chain," Saylor told Forbes magazine in late 1998, "We're going to fight to the death to win permanent global dominance in our industry."
Then the company crashed. On March 10, 2000, MicroStrategy's stock hit a high of $313 per share, more than 60 times its IPO price. Two weeks later, the company announced it needed to restate its financial results, and the stock plummeted to $72. The SEC accused Saylor and others of accounting fraud, and MicroStrategy later settled the charges for $11 million. Within two years, the stock had fallen below $1. Saylor's $13 billion fortune evaporated.
Here is the English translation, with the specified terms preserved and not translated: "This is the darkest moment of my life, when people lose money because they trust you, it's really terrible," he said. In 2020, after the government had implemented quantitative easing policies and invested trillions of dollars in COVID-19 stimulus measures for several consecutive years, He Yi was convinced that the $530 million in cash and short-term investments remaining on MicroStrategy's balance sheet would be best used to invest in Bit. The US government can print dollars at will - and it is trying to do so - but Bit has a hard cap: the number of Bits will never exceed 21 million. If the Bit price crashes, the drop in MicroStrategy's stock price will be more severe and faster than Bit itself. But don't overlook He Yi just because he's too smart. Many other companies are also emulating MicroStrategy - the company now calls itself "the world's first and largest Bit treasury." Some public companies, such as Metaplanet, even rely on Bit to survive. This Tokyo-based hotel chain faced an existential crisis during the pandemic when Japan closed its borders to tourists. The small hotel company sold 9 of its 10 hotels and issued stocks and bonds to buy hotels with $70 million in Bit. Metaplanet's stock trades on the Tokyo Stock Exchange and over-the-counter markets, rising 2,600% by 2024, although the Bit it holds is only worth $183 million, its market capitalization is currently $1 billion. The company's website now reads "Securing the Future with Bit" and hardly mentions hotels. "We are very grateful to Michael Saylor for developing a business plan for us to emulate worldwide," said Metaplanet CEO Simon Gerovich, who was a guest at Saylor's New Year's party. "I invented 20 things and worked hard to make them successful, but none of them changed the world. Satoshi Nakamoto created one thing and gave it to the world, then disappeared. It made me more successful than any of my own ideas." Although many companies are unlikely to go to the extreme like Metaplanet, Bit holders will certainly become more numerous. In January this year, the US Financial Accounting Standards Board amended a rule that previously only allowed companies to record declines in the value of cryptocurrencies as losses in quarterly reports, and now holding cryptocurrencies will be marked to market, allowing for hedging of gains and losses. For MicroStrategy, the company that lobbied to change the rules, this could mean profitability for multiple quarters and potential inclusion in the S&P 500 index. According to YCharts data, today there are hundreds of large publicly traded companies globally that hold cash more than twice their current operating and debt needs. The most famous of these is Berkshire Hathaway, which currently holds $320 billion in cash. Given the $35 trillion (and still growing) in national debt, Saylor's mantra has been "cash is trash." "Financial repression is a permanent phenomenon," Bitwise's Park insists, which is the inevitable result of governments lowering interest rates. We live in a highly financialized world where the real economy and the financial economy have become largely disconnected. If you don't print more money, you can't actually pay off the debt. If you think you have to keep printing more money, then you'd better believe the yield curve will be suppressed. In Saylor's view, the Villa Vizcaya itself is the best example. This 18,000-square-foot mansion on Miami's "Millionaire's Row" was built in 1928 for the president of the Woolworth department store chain. Saylor bought the house for $13 million in 2012. "This house was worth $100,000 in 1930," Saylor said in a 2023 podcast interview. "A few years ago it was valued at $460 million," he said in a 2023 podcast interview, "Do the math - it's on its way to being worth $100 million, which means the dollar has lost 99.9% of its value in 100 years. The most important thing is: the money in the bank is not money." Trump's governance in the coming years could be good for MicroStrategy and Bit. Although Trump has loudly touted "government efficiency," he was a big spender during his first term as president: according to data from the Committee for a Responsible Federal Budget, the national debt increased by $8.4 trillion during Trump 1.0's four-year term. Although he once publicly called Bit a "scam" that would compete with the dollar in 2021, Trump is now fully immersed in cryptocurrencies. In fact, his son Eric recently posted a photo with Saylor at Mar-a-Lago, captioned "Two friends, one passion: Bit." Not only is the value of the dollar likely to further depreciate over the next four years, Saylor's relentless promotion and anti-utopian MAGA worldview are a perfect match. "The human condition has always been plagued by toxicity: toxic food, toxic liquids, the human economy has always been plagued by toxic capital. My mission is to evangelize non-toxic capital to the world," he preaches. But even Michael Saylor occasionally steps down from his pulpit to reflect on his corporate journey. He says: We adopted Bit out of necessity and desperation, then it became an opportunity, then a strategy, then an identity, and finally a mission. The irony of my career is that I invented 20 things and tried to make them successful, but I really didn't use any of them to change the world. Satoshi created something, gave it to the world, and then disappeared, and now we're just carrying on that spirit. Ironically, this has made me more successful than anyone who has tried to commercialize every one of their own ideas. It's a lesson in humility.
