Does MicroStrategy posses a threat to Bitcoin?

Explore the impact of Michael Saylor and MicroStrategy on the world of Bitcoin, risk management, and potential consequences.

SOLIDUS'S INSIGHTS

11/2/20236 min read

You either die as a hero…

Today I would like to talk about Michael Saylor and his company MicroStrategy. He is a person who, in my opinion, receives undeserved admiration from the Bitcoin community. He is a person who brings an extreme amount of risk to Bitcoin. This can potentially have a very negative effect, yet he is adored on the other side.

We’ll describe what MicroStrategy actually does and what it means it buy bitcoins. I’m going to share something pretty interesting with you because most people have no idea how MicroStrategy works.

Michael Saylor’s character is something like Elon Musk in a few years. Elon Musk was exactly the same. Adored by the community, the one who pumps the bags for us. He’s the good guy who helps Bitcoin in the corporate spheres. But then Tesla sells bitcoins and overnight Musk is the worst enemy. He became a shitcoiner pumping Doge, and the biggest douchebag. Michael Saylor is even worse because what he did with MicroStrategy and Bitcoin is potentially a big screw up. Let’s look more into the details.

What is MicroStrategy?

Michael Saylor own majority of MicroStrategy, so he can actually manage the company.

By the end of 2020 and then in 2021, MicroStrategy accumulated a large amount of Bitcoin. For this large amount of Bitcoin, this company had to borrow.

Let’s describe what MicroStrategy actually does. He has been selling some software for 20 years that earns more or less the same money. Decision to start buying bitcoins was actually a decision to start extremely leveraging the stock value of this company.

Convertible notes

First Tranche

First, in December 2020, it issued the first tranche of so-called convertible notes.

A convertible note is an instrument where someone lends money. In return, he’s able to convert this loan into shares of that company in the future. MicroStrategy issued this note a total of two times. At the end of 2020 they borrowed $650 million with a coupon rate of 0.75%. The interest rates were low, so they were able to borrow with the so-called unsecured note.

At the end of 2025, the person who lended them money will have two options:

1) Get the money back (with interest)

2) Convert them into MicroStrategy shares.

The entities that loaned money to MicroStrategy are not publicly known. They basically bought a sort of MicroStrategy stock option.

MicroStrategy shares are currently at $423 (as of November 1, 2023). and the conversion price of this convertible is $397. If the MicroStrategy stock goes lower that $397, whoever lent $650 million to MicroStrategy will want that money back (if MicroStrategy stock does not cost more than $397)

Second Tranche

The next tranche that MicroStrategy did was in February 2021. They borrowed another billion dollars at 0% interest due in February 2027, again unsecured, and there’s a conversion price of $1432. Those who loaned MicroStrategy 1 billion dollars will want that money back if MicroStrategy stock does not cost more than $1432. This means that the stock simply has to make a multiple from now. If it does, they could repay those creditors by issuing new shares.

Third Tranche

The third tranche in the amount of 500 million dollars, is already secured. This took place in June 2021, but it was a simple interest loan with an interest rate of 6.125%. Bitcoins were used as collateral for this loan, with a relatively low Loan-to-Value (LTV) of 50%. That means they must always have twice the value of the Bitcoins it borrowed. The loan was also secured by MicroStrategy software.

The maturity of this last tranche of the $500 million is not until 2028.

The Catch

The Condition

But there is such a clause that 91 days before the first convertible notes are due. If in 2025

1) MicroStrategy does not have more than 130% of the liquidity of the loan (more than 700 million dollars),

2) or the convertible note is not repaid, that means the original 650 million dollars will not be repaid,

Then this third tranche of 500 million will become due. Long story short, what does this actually mean for MicroStrategy?

Well, that its shares will have to grow extremely so that the convertible note flips over and they don’t have to sell it. Or that Bitcoin will have to make multiples so that MicroStrategy has to sell only part of those Bitcoins. They managed to accumulate 132,000, that is by the end of 2022. That’s 0.6% of the total amount of Bitcoins there will ever be.

The Sanction

Now imagine what we have on the market. We have a company that doesn’t make that much money. Most of it costs are servicing the debt. To pay of the dept they can:

1) Either take and sell their Bitcoin in 2025, to be able to pay off its debts.

2) Or convince some other investors that they should lend MicroStrategy so that it can erase old debts. MicroStrategy’s ability to borrow again is a question of Saylor’s ability.

MicroStrategy itself admits that its the hiring of talents is entirely on Sailor. If Sailor would left, MicroStrategy would actually get a strong hit in terms of talent and money.

If he sold MicroStrategy and bought Bitcoins with what he got, he would never have a fraction of it. It’s actually taking a somewhat stagnant company and transforming it into a company holding Bitcoins. For someone who invests in it, this is complete nonsense.

For the people or institutions that lent MicroStrategy two billion dollars, it seems like an extreme gamble. Because they actually bought the possibility of turning over to a company that we don’t even know if it will pay off its huge debt.

What would need to happen?

Well, actually the only thing that will be enough for this to happen is that Bitcoin does not grow. It is enough that Bitcoin will go sideways for the next 2-3 years, which is a realistic scenario even if everyone is hoping for a halving. This will cause MicroStrategy to have to go to the market and sell its Bitcoins in order to pay off the debt. It will not be a matter of someone deciding, it will be a matter of being forced, it is basically liquidation. But a different liquidation than the one being talked about. It is very often discussed how many Bitcoins they have bought and when they will have to start selling them. That’s not such an issue. They are extremely leveraged in terms of their own debt and in terms of maturity of the debt.

The only thing that will get them liquidatet them is that Bitcoin will not grow. That’s the absolute worst part.

I believe Michael Saylor won’t let that happen. With how well-known he is, he will be able to make some new tranche and maybe buy even more Bitcoins and borrow even more money, it is possible that he can do it. He is capable of marketing; he actually has an enormous reach.

Or if Bitcoin skyrockets in such a way that the two billion will be like nothing, and only
a small part will be sold.

If one of the two things doesn’t happen, that means the price will be the same, then the market will get flooded by huge amount of Bitcoins. Then everyone will of course start hating him because he’ll start dumping everything on their heads. Saylor will end up being like Musk, the same at the beginning as at the end.

Is Saylor fake Prophet?

He will not change that, he will just have to be forced by the market and those conditions are already there. Yes, screwing your bags. Yes, he certainly had a positive effect on the price. He withdrew the liquidity from circulation, so it means that your bitcoins are now more expensive than they would be without Sailor.

That’s trading short-term profit for long-term potential significant risk. Everybody’s sitting on a ticking bomb right now. They’re still discovering that bomb is buying again, so it’s getting bigger and that the explosion is going to be even more devastating. This is all I wanted to tell you.

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