Michael Saylor on Citron's short bet on MicroStrategy

Summary

Michael Saylor, Executive Chairman of MicroStrategy, explains how the company’s business model revolves around Bitcoin treasury management. By leveraging Bitcoin's volatility and using sophisticated financial strategies, such as convertible bonds and equity premiums, MicroStrategy has generated significant profits. Despite risks associated with Bitcoin’s price fluctuations, Saylor asserts that the company’s investors accept this volatility and believe in Bitcoin’s long-term growth. He highlights recent gains of $5.4 billion and positions the company as one of the fastest-growing and most profitable in the U.S. Saylor emphasizes his confidence in Bitcoin’s future performance.

Takeaways

• 😀 MicroStrategy is a Bitcoin treasury company, with $35 billion in Bitcoin assets, generating profits through Bitcoin volatility.
• 😀 The company sells volatility and recycles it back into Bitcoin, while stripping volatility and risk from fixed income securities.
• 😀 MicroStrategy's common stock delivers 2X Bitcoin performance, generating a spread from Bitcoin, equity premiums, and convertible premiums.
• 😀 The company made a $3 billion Bitcoin gain in just five days, equating to approximately $12.50 per share over ten years.
• 😀 A recent $3 billion convertible bond raised at an 80% Bitcoin spread generated a $2.4 billion gain, or $10 per share, which could translate into $125 per share over ten years.
• 😀 The company's business model thrives on Bitcoin's long-term price growth, with expectations of a 29% annual increase over the next 20 years.
• 😀 The main risk to the business is the existential risk of Bitcoin going to zero, which all investors in MicroStrategy accept as part of their belief in Bitcoin.
• 😀 Investors in MicroStrategy believe in Bitcoin's future and its 60% average annual growth, aiming for 2X leverage and volatility in their stock investment.
• 😀 In the past two weeks, MicroStrategy generated $5.4 billion in Bitcoin gains, with daily profits of $500 million.
• 😀 MicroStrategy is positioned as one of the fastest-growing and potentially most profitable companies in the United States, making significant gains by selling Bitcoin-related products.

Q & A

What is the core business model of MicroStrategy as explained by Michael Saylor?

MicroStrategy operates as a Bitcoin treasury company, holding around $35 billion worth of Bitcoin. They make money by leveraging Bitcoin's volatility, selling the volatility, and reinvesting those profits back into Bitcoin. They also transfer the risk and performance of fixed income securities into their common stock, delivering a return of 2X Bitcoin's performance.

How does MicroStrategy generate profits from Bitcoin's volatility?

MicroStrategy generates profits by selling volatility and converting it into Bitcoin. For example, they use equity offerings such as ATM (At-The-Market) runs and convertible bonds to generate a spread, with a portion of the profit coming from Bitcoin's price fluctuations.

What is meant by the 'BTC spread' mentioned by Michael Saylor?

The 'BTC spread' refers to the difference or premium between the price of Bitcoin and other financial instruments like the U.S. dollar or fixed-income securities. It represents the profit made by exploiting Bitcoin’s volatility and transferring that risk to other financial assets.

What recent financial move did MicroStrategy make to capitalize on Bitcoin's volatility?

Recently, MicroStrategy raised $4.6 billion through an ATM offering at a 70% spread, making a $3 billion Bitcoin gain within five days. This highlights the company’s strategy of generating profits from Bitcoin's fluctuations.

How does MicroStrategy manage risk given the volatility of Bitcoin?

The biggest risk MicroStrategy faces is the existential risk of Bitcoin collapsing to zero. However, they accept this risk as Bitcoin investors and believe that Bitcoin will continue to increase in value over the long term, projecting 29% annual growth over the next 20 years.

What returns does MicroStrategy expect from Bitcoin over the next 20 years?

MicroStrategy expects Bitcoin to grow at an average annual rate of 29% over the next 20 years. They believe this trend is supported by Bitcoin’s historical performance, which has shown an average annual growth of 60%.

What is the significance of MicroStrategy's common stock delivering 2X Bitcoin?

MicroStrategy's common stock is designed to deliver 2X the performance of Bitcoin. This means that for every 1% increase in Bitcoin’s value, MicroStrategy’s stock would ideally increase by 2%. This strategy amplifies the potential gains for shareholders.

What was the impact of MicroStrategy's recent $3 billion convertible bond offering?

MicroStrategy raised $3 billion through a convertible bond offering at an 80% Bitcoin spread, resulting in a $2.4 billion gain. Over ten years, this would translate into approximately $125 per share for shareholders, showing the company’s ability to generate significant returns.

What is the existential risk that Michael Saylor refers to in his explanation?

The existential risk Michael Saylor refers to is the possibility that Bitcoin could experience a catastrophic event, causing its value to drop to zero. This would create a major crisis for MicroStrategy, as the company’s business model is heavily reliant on Bitcoin's value.

How profitable is MicroStrategy currently, according to Michael Saylor?

According to Saylor, MicroStrategy is one of the most profitable companies in the United States right now. They are making up to $500 million a day and growing rapidly, partly due to their Bitcoin holdings and trading strategies based on Bitcoin’s volatility.