Billionaire Michael Saylor is facing unprecedented challenges as the share price of his company, Strategy, plummets amid a bearish cryptocurrency market and looming regulatory changes. The firm, which holds over 3% of the world’s Bitcoin, has seen its stock decline sharply, raising concerns over its unique approach of financing Bitcoin acquisitions through stock sales.
On Monday, Strategy announced a $1.2 billion reserve fund aimed at fulfilling upcoming interest and dividend commitments, but this move failed to stabilize its stock price. Critics are ramping up their attacks, dubbing the company’s unconventional model as unsustainable, with some even suggesting it resembles a Ponzi scheme.
Saylor is no stranger to adversity; he previously weathered a significant accounting scandal in 2000 that nearly led to the collapse of one of his prior enterprises, costing him $6 billion in personal wealth overnight. His supporters, however, argue that many detractors fail to grasp the complexities of Bitcoin and the financial strategies behind Strategy.
The current crisis is exacerbated by a proposed rule change from financial giant MSCI, which could lead to the exclusion of Strategy from major indexes. This would compel fund managers to divest their shares of Strategy and similar companies, and analysts estimate that the selloff could reach up to $8 billion if other index providers follow suit. The market has already reacted; shares of Strategy (traded under the ticker MSTR, reflecting its former name, MicroStrategy) have fallen around 50% since early October.
This decline has affected a key metric known as mNAV, which measures the value of a company’s shares against its Bitcoin reserves. Strategy’s mNAV has dipped below one recently, a stark contrast to the high of approximately 2.45 a year ago. This drop signifies the erosion of the premium that Strategy shares once held over Bitcoin.
In response to this onslaught of bad news, Saylor has opted for a more flamboyant approach, increasing his social media presence with memes that champion Bitcoin, and portraying himself as an action hero. However, even his meme tactics—which previously helped boost momentum during bullish market phases—failed to contain the stock’s downward spiral.
Pearson’s critics have suggested that Saylor’s recent attempts to dispel rumors about selling Bitcoin, including sharing a dramatic meme depicting himself riding a life preserver while a flaming liner sinks, might reflect a credibility crisis rather than confidence. This has prompted speculation about whether Strategy would actually liquidate some of its substantial Bitcoin holdings.
As of late November, Strategy hoarded an impressive 650,000 Bitcoin, amounting to approximately $58.5 billion. The company has historically funded its Bitcoin purchases by selling common shares, avoiding financial obligations tied to debt. However, with $200 million in preferred share dividends due by the end of December, Saylor’s strategy of tapping into the equity market faces new tensions.
To reassure investors of its fiscal health amid these challenges, Strategy recently established a dollar reserve of $1.4 billion, ostensibly covering its dividend obligations for the next 21 months. During a recent presentation, Saylor expressed confidence in continuing to accumulate Bitcoin, even while acknowledging the possibility of selling if financial pressures require such a move.
Saylor’s remarks about potentially liquidating Bitcoin, even if framed as a last resort, ignited further scrutiny from critics, including prominent anti-crypto advocates. The consequences of a potential selloff could ripple through the broader cryptocurrency market, triggering significant declines in Bitcoin prices. If Strategy were to sell even a fraction of its holdings, it could spark similar actions from other companies with similar models.
Despite the skepticism surrounding his company’s operations, some investors view Strategy as a leader in a nascent category of digital asset treasuries, akin to a new breed of banks within the crypto space. Amidst the turmoil, supporters point to Saylor’s ambitious long-term strategy, leveraging capital markets for enhanced revenue through methods like lending Bitcoin and selling options.
In the evolving landscape, there’s hope for a resurgence. Some crypto advocates believe that Bitcoin’s long-term trajectory remains positive, supported by growing institutional interest. Recent moves by major firms like Vanguard to incorporate Bitcoin into their portfolios suggest that large-scale adoption could be looming.
Ultimately, the upcoming months will be critical in determining whether Strategy can navigate its current predicaments successfully. With the potential for increased regulation and market volatility, the outcomes may redefine perceptions of both Saylor and the broader digital asset treasury model. The landscape appears tumultuous, yet as history has shown, resilience and adaptability could pave the way for the firm to emerge from this downturn stronger than before.
