Billionaires have all kinds of tricks for making money.
If I want to make money from Tesla stock, I have to buy it upfront and hope it grows. The richest among us have a different game plan. They invest nothing upfront and still make hundreds of millions of dollars.
Here's a master class on how to make money out of thin air.
Don't sell your Bitcoin
If there is anyone who is a Bitcoin advocate, it is Michael Saylor.
He is the Executive Chairman and former CEO of MicroStrategy, a provider of data analytics software solutions.
MicroStrategy has been gobbling up Bitcoin since 2020. This could be a decision made by Mr. Saylor alone. He owns 12% of the company’s stock but has 56% of the voting power.
MicroStrategy is the tenth largest Bitcoin holder. It holds 1% of all Bitcoin in circulation. No wonder the company’s stock price is closely correlated with the cryptocurrency. Bitcoin surged in early 2024, and so did MicroStrategy stock.
If you’re wondering when Mr. Saylor will sell his Bitcoin, that’s not his plan. Mr. Saylor famously said:
"Bitcoin is an exit strategy"
You can make money without selling your Bitcoin. My friend Dave Coker explains the concept of Yield Farming. You lend your cryptocurrency at a pre-agreed price and interest rate through a cryptocurrency exchange. You do not need to sell your Bitcoin.
It's like lending a security. If you've ever shorted a stock, you borrowed it through a broker. It's not free. You pay interest on the stock until you buy it back and return it.
Yield farming has yet to take off as cryptocurrency exchanges still need to ensure the necessary network security. Just this May, $300 million in Bitcoin was stolen from a Japanese cryptocurrency exchange. If that sounds like a lot, in 2022, FTX suffered an even larger hack, with investors losing $477 million worth of Bitcoin.
There is still room for this technology to grow. Before you make money from yield farming, let me tell you how Mr. Saylor makes money with Bitcoin (without selling).
How to make $370 million without investing a penny
What Mr. Saylor has done is unprecedented.
My girlfriend calls this "looking at the system from above" from an astrologer's perspective. It's just a clever way to use other people's money to line your own pockets.
I hate debt. It would make me feel obligated to work and pay it off for years to come. This inefficient way of making money is not what billionaires do.
MicroStrategy’s move to take on $4 billion of debt to buy bitcoin and issue convertible notes that can be converted into company stock may raise eyebrows, but in reality it proves Mr. Saylor right.
Since 2020, the company has purchased 226,331 bitcoins at an average price of $35,158. As of June 29, 2024, the bitcoin price is $60,869, and MicroStrategy has realized a large amount of unrealized gains.
Right now, Bitcoin is in a medium-term trading range. So are MicroStrategy shares. Perhaps Mr. Saylor doesn’t expect the price of either currency to rise significantly in the foreseeable future.
All in all, he sold 360,000 shares of MicroStrategy in 2024 and pocketed $370 million. Most of the money came indirectly from the rise in the price of Bitcoin.
When MicroStrategy started buying Bitcoin in 2020, the company’s stock price dropped 10-fold. Not bad for a business that is still reporting negative earnings.
Cash reserves (in the form of Bitcoin) play a decisive role in its stock price.
As Mr. Saylor said
It looks like he won. Mr. Saylor raised money through his business, bought bitcoin, watched the share price soar, and then sold the shares.
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It’s hard to replicate Mr. Saylor’s strategy unless you have a billion-dollar business (or can easily borrow that much money). But several public companies also hold large amounts of Bitcoin.
With the advent of yield farming, everyone who holds Bitcoin will be able to earn money by lending out their Bitcoin.
We are currently observing and learning new ways to create wealth.
This article is for informational purposes only. It should not be considered financial or legal advice. Not all information is accurate. Please consult a financial professional before making any major financial decisions.
