Times are bad, which means, by the perverse logic of American capitalism, stock markets and speculative investments are flourishing. Bitcoin, the digital currency whose value is pegged to nothing but the amount its adherents are willing to pay for it, is at an all-time high, approaching $29,000 at the end of 2020. For those who held on and defended Bitcoin during its fallow periods, its time seems to have finally come, particularly as PayPal promises to allow customers to start buying and selling cryptocurrencies next year.
Every bull market has its whales, and for Bitcoin of late the biggest whale has been Michael Saylor, the CEO of MicroStrategy, a Virginia-based enterprise software company. Saylor, who controls a majority of his company’s voting shares, has put more than $1.2 billion of MicroStrategy funds into Bitcoin, much of it in just the last month. The company now calls Bitcoin its “primary treasury reserve asset.” Saylor’s bold positioning (raising debt offerings explicitly to buy Bitcoin) and unapologetic attitude (he’s become a regular on the cryptocurrency talk circuit) have made him a darling of crypto-loving Redditors and tech executives inspired by his example. (A Canadian augmented reality company recently announced, as part of its capital diversification strategy, that it was putting $2 million into Bitcoin, which the CEO called a “digital version of gold.”)
The strategy has been more than good for Saylor, who claims to personally own nearly 18,000 Bitcoin, and for MicroStrategy, whose stock has risen from about $92 in mid-March to nearly $400 at the end of the year. The price of Bitcoin rose more than $10,000 in December alone.
Saylor has done something unusual, turning his unremarkable software company into more like a Bitcoin investment vehicle that happens to make software. (Saylor, while bombastic on Twitter about his venture, has denied that his company’s huge cryptocurrency holdings qualify it as an exchange-traded fund, or ETF, which carries with it certain regulatory burdens.) Other companies have bought Bitcoin: The payments company Square, which is helmed by Twitter CEO Jack Dorsey, bought $50 million worth in October 2020. But none have made such a project of it, orienting the company around accumulating a chaotic currency that also happens to be an environmental catastrophe.
But whatever you think of Bitcoin, Michael Saylor’s own story is more complicated, calling into question what we should expect from Bitcoin’s latest rally. After founding MicroStrategy in 1989, Saylor was part of an alleged accounting scheme that vastly overstated the company’s earnings, making a money-losing, publicly traded corporation look profitable. In 2000, Saylor, two other MicroStrategy executives, and the company itself paid a total of $11 million in a settlement with the SEC; Saylor, who personally signed off on the fraudulent earnings reports, paid $8.2 million of that. The charges were settled with no one admitting any wrongdoing. Somehow, Saylor has held onto his role at MicroStrategy over the last 20 years, reportedly becoming one of the richest people in the capital region. The company’s revenue has declined every year since 2014.
A critic of Covid-19 lockdown measures, Saylor exhibits many of the libertarian-inflected tendencies of the Bitcoin true believer. For him and his ilk, Bitcoin is an asset in which funds may be parked (and hopefully grow in value) while mostly outside the reach of the government-managed economic system. Like goldbugs, they have a distrust of federal authority and think that the economic lesson of the Covid-19 crisis is that scarcity reigns—in fact, should reign—and that central banks, by simply printing money through quantitative easing and relief efforts like the Cares Act, are risking inflation and cheapening the value of the dollar. The virtue of Bitcoin is that it’s limited—according to the code underpinning the cryptocurrency, only 21 million Bitcoin will ever be “minted,” with about 18.5 million already in circulation—so better to get in as soon as possible. Even Saylor, who has also called Bitcoin “digital gold,” has his regrets about not buying more earlier: “I wish I knew then what I know now,” he told a journalist in September.
Saylor described his company’s decision as a way of dodging inflation, taxes, and fees, and putting extra capital to more productive use. He says that the company will hold onto its Bitcoin for 100 years. But a company struggling to increase revenue that chooses to put its cash reserves into a speculative digital cryptocurrency is reason enough to take pause. Saylor and MicroStrategy’s history of alleged fraud is another one.
The truth is that Bitcoin, unlike gold, is worthless.* It doesn’t do anything; it has no inherent value and can’t be converted to some other purpose. It’s not backed by a government, making it most useful to transnational crime networks, intelligence agencies, and anyone else looking to keep some assets off the books. The electricity cost of creating, or “mining,” a Bitcoin—which requires accessing the Bitcoin network and making a complicated mathematical calculation that requires tremendous computer power—makes it indefensible. (The more Bitcoin that are mined, the more complicated the calculations become.) Bitcoin works, if at all, because a band of rich speculators has decided it should. Institutional investors are pouring billions into Bitcoin, which some analysts think account for much of its movement in recent months. MicroStrategy itself counts the finance giant BlackRock as its biggest outside shareholder. (Saylor has said that he thinks much Bitcoin trading data is inaccurate.)
But just because Bitcoin is volatile and potentially worthless doesn’t mean you can’t make money from it. “Buy low, sell high” applies as easily to Bitcoin as it does to MicroStrategy’s stock (which Citigroup downgraded to a “sell” rating in response to the cryptocurrency purchases). On Monday, MicroStrategy transferred 50,000 shares of Class A company stock to Alcantara LLC, of which Saylor is the sole owner. Many executives exercise stock options through private investment vehicles—and Saylor reportedly controls another company called Aeromar Management Co. LLC—but there is something strange about the move. According to SEC filings, until just a few days ago Alcantara hadn’t received any MicroStrategy stock, or any other securities, since March 2012. Whatever Saylor is up to, Bitcoin isn’t the only thing he’s changed his mind about.
* This article originally mischaracterized the value of gold.