During his first term, former President Trump was openly skeptical of cryptocurrency, but went “all-in” on crypto during the campaign, dubbing himself the “Crypto President” and his sons launching World Liberty Financial, a cryptocurrency exchange “inspired by Donald J. Trump” which sells its own $WLFI digital token for $0.015/token.

In the few short weeks since the election, Bitcoin has surged from under $70,000 to over $100.000, a gain of almost 50% (up 140% for 2024).  That’s impressive, but pales in comparison to the “to the moon” performance of MicroStrategy, Inc. (Nasdaq-MSTR), which soared from $227.80 on Election Day to $473.83, up 108% in eleven trading days and a stunning 650% for 2024.

Created by the mythical Satoshi Nakomoto in the wake of the Global Financial Crisis, Bitcoin garnered momentum from a worldwide community distrustful of governments and traditional financial institutions (“centralized finance”) and intent on establishing a new, global currency, unencumbered by governmental oversight or manipulation (“decentralized finance” or “DeFi”).  By design, Bitcoin supply is forever limited to 21 million Bitcoins, about 19.8 million of which have been created. 

Bitcoin traded around $7,000 at the beginning of 2020, peaked at $67,800 in November 2021 and plunged to $15,600 a year later (down 77%), in the “crypto winter” following the implosion of crypto wunderkind (and convicted felon) Sam Bankman-Fried’s FTX, admitted felon Alex Mashinsky’s Celsius Network and many others that obliterated billions in value from the global digital-asset market and wiped-out the savings of thousands of individual investors.

In hindsight, Super Bowl LVI (aka the “Crypto Bowl”) in February 2022 marked the market top, as commercials featuring investment gurus LeBron James, Larry David and Matt Damon stoked “FOMO” (Fear Of Missing Out), with Damon infamously shilling “Fortune Favours the Brave” for Crypto.com.

We don’t know where Bitcoin falls on the investment/speculation spectrum.  We’re not experts in Bitcoin, cryptocurrencies or the “decentralized finance” (DeFi) ecosystem.  Bloomberg’s Matt Levine is an expert and wrote the definitive primer on crypto, The Crypto Story—Where it came from, what it all means, and why it still matters.  We do know there are many ways to invest/speculate in Bitcoin, including an illogical one.

Enter MicroStrategy and its CEO-turned-Bitcoin-evangelist, Michael Saylor.  MicroStrategy has an enterprise software business, but early in the pandemic, Saylor decided to “go for broke” and transform the company into a Bitcoin buying machine.

Saylor’s unorthodox idea has succeeded to the point it appears to have created its own “Twilight Zone” where traditional rules of finance (and common sense) are in a perpetual state of suspended animation.  Indeed, Saylor’s message MicroStrategy owning an increasing percentage of Bitcoin’s forever maximum limit of 21 million Bitcoins will lead to riches beyond imagination has resonated with and created a cult following among the “YOLO” (You Only Live Once) crowd.

MicroStrategy owns 439,000 Bitcoins (about 2% of Bitcoins outstanding—a stake worth more than $46 billion) and is the world’s largest corporate Bitcoin holder.  MicroStrategy announced a plan in October to issue $21 billion of stock and $21 billion of bonds through 2027 to finance the purchase of more Bitcoin.  The company has since issued about $10.5 billion of stock and issued a $3 billion convertible bond (pays 0% interest and converts into stock at a whopping 55% premium).

This massive amount of equity and debt issuance has enabled MicroStrategy to increase its Bitcoin holdings by 60% just since September 30.  The company’s own purchases of billions of dollars of Bitcoin have caused the price of Bitcoin to surge.  With Bitcoin supply forever capped at 21 million Bitcoins and MicroStrategy vacuuming up available supply (and decreasing the number of Bitcoins in circulation), the value of MicroStrategy’s Bitcoin holdings has skyrocketed, along with the stock price.

MicroStrategy issues equity and/or debt, uses the proceeds to purchase Bitcoin, which causes the price of Bitcoin to rise, which makes the company’s holdings of Bitcoin more valuable, which causes the price of the stock to rise, which enables MicroStrategy to sell more equity and/or debt.  It would appear the company has discovered an “infinite money glitch.”

The “rub” is the market capitalization of MSTR is $102 billion, while its Bitcoin holding is worth only about $40 billion.  Yes, the legacy software business has value, but shareholders are paying more than twice what the Bitcoin stash is worth.  When Saylor transformed MicroStrategy into a Bitcoin proxy in 2020, there were no others.  As we discussed in our column on March 8, “Are new Bitcoin ETFs ‘Déjà vu’ all over again?,”  now there are many.

Putting it all together, MicroStrategy is a leveraged (uses borrowed money) play on a highly volatile asset (Bitcoin), trading at an illogical premium.  How long can MicroStrategy’s “money glitch” continue?  Probably longer, but glitches are usually temporary.  MSTR was just added to the Nasdaq-100 Index, so index funds will be forced to buy the stock.  That said, we’ve seen this movie before and it often ends with tears and congressional hearings.

As the investment guru Mark Twain said, “Having faith is believing in something you just know ain’t true.”

The opinions expressed in these articles are those of the author as of the date the article was published. These opinions have not been updated or supplemented and may not reflect the author’s views today. The information provided in these articles are not intended to be a forecast of future events, a guarantee of future results and do not provide information reasonably sufficient upon which to base an investment decision and should not be considered a recommendation to purchase or sell any particular stock or other investment.