I've written several times in the past few months about how Michael Saylor and MicroStrategy are playing a very dangerous game—one that could well crash Bitcoin. Well, it looks like I'm not the only one with this idea. I just came across this video the other day that is talking about it.
I'll post the video at the end. I want to talk a bit about things first.
The basic idea behind what MicroStrategy (recently renamed Strategy; ticker symbol MSTR) is doing is that they are borrowing money to buy Bitcoin. They are borrowing money in the form of convertible notes. What is a convertible note? It is basically a loan. MSTR sells these convertible notes and promises to pay back with interest, just like a normal loan. The twist is that these notes can be converted into shares of MSTR at a specific strike price, a predetermined price per share.
That's the carrot. If MSTR's stock price goes up, investors can convert the notes into stock and profit from the difference. If MSTR'S stock price stays low, investors can just get their money back when the note (loan) matures. Win-win, which is why Saylor has been able to find so much money to support his BTC buys.
Let's restate that another way to help it sink in.
These convertible notes are IOUs. If MSTR's stock price goes up, the IOUs become much more valuable because of the option to convert them to MSTR stock. Otherwise, investors just sit tight and wait to have their IOU filled, with interest, so they lose nothing. Well, unless the house of cards collapses. We'll get to that. Both MSTR and its investors are gambling that BTC’s price will keep rising.
Why issue convertible notes instead of just selling stock? Saylor isn't stupid; if his company issues convertible notes instead of just selling stock because this funds his BTC buys without diluting existing shareholders. Of course if the price of MSTR goes up high enough to hit that strike price and investors convert the notes to shares, it does dilute the total shares, but presumably shareholders won't care as much as long as the price is high.
All is good as long as the price of BTC always goes up. The problem is if it doesn't.
If BTC stays flat or falls, MSTR’s stock will likely follow. They still have to pay interest on the notes regardless of BTC’s performance, and when those notes mature, investors will expect repayment. If BTC drops significantly, MSTR could face margin calls and suddenly owe a lot of money. If that happens, things could spiral out of control quickly.
If that happens... well, you don't have to look hard in investing history to see how one little thing spirals out of control and takes the entire market with it. Black Monday in 1987 was just such a time. And it's happened dozens of other times. MSTR owns a lot of BTC. If this whole things starts to collapse and they are forced to liquidate their BTC, this will cause the price to tank.
You see, this is exactly why Saylor has become Bitcoin’s loudest cheerleader. He’s everywhere—talks, interviews, podcasts—pushing BTC like it’s the greatest invention since fire. He needs people to keep buying, to keep the price rising. If that momentum stalls, the whole structure he’s built could start to crack.
Ironically, this would be good news for Bitcoin maximalists and true believers (like presumably everyone on Hive reading this post): BTC could go on sale. Likely it would be even worse than the last crash. So... great sale! But in the short term, it would be a wreck, and that “short term” could stretch on for years.
Of course, I hope none of this plays out. I hope Saylor’s scheme continues to work. But we need to stay aware of the risks and be prepared for what happens if it doesn’t.
All that said, watch the video for another take on this. The video gives some more details that I didn't mention above.
Ultimately, it's bad for us to have someone like Saylor in this ecosystem. We want BTC spread out, not concentrated. If MSTR did fail and BTC crashed, that would probably ultimately be good for the ecosystem. But yeah... it is probably something none of us want to test.
[Note: I originally wrote this a few days ago. WIth the pump back up to 95k, this is less an immediate worry, but I think we can probably be fairly confident that Bitcoin hasn't seen the last of volatility. MSTR's gamble will continue to be a huge risk.]