MicroStrategy founder Michael Saylor has often boasted about the company’s volatility. -James Jackman for WSJ
Bitcoin prices are up 40% since Election Day. MicroStrategy has risen even faster.
The software company turned itself into a bitcoin buying machine in 2020 and now owns about $38 billion worth of tokens. For many individual investors, the stock is a more popular Bitcoin play than the cryptocurrency itself, and they are willing to pay for it.
With a market value of $90 billion, MicroStrategy trades at more than twice the value of the underlying bitcoin. Shares have risen more than sixfold this year and are up 85% since Nov. 5, with traders betting the digital asset industry will flourish under newly-elected President Donald Trump. Bitcoin prices are hovering just below $100,000.
“MicroStrategy has found a way to outperform bitcoin,” Michael Saylor, the company’s founder and executive chairman, said in an interview. “The way we essentially outperform bitcoin is we just increase bitcoin.”
And Saylor says he’s just getting started. He unveiled a bold plan just days before the election to hire investment banks to raise $42 billion in capital over three years through stock and bond offerings to buy more tokens. His company had $4.3 billion in convertible debt outstanding as of Oct. 29.
MicroStrategy’s mix of bitcoin maximalism and Wall Street-style financial engineering has paid off for its investors, but skeptics question whether it is sustainable.
Saylor’s heavy use of leverage, or borrowed money, to buy bitcoin backfired during the crypto market collapse of 2022, when the collapse of Sam Bankman-Fried’s FTX sent bitcoin prices below $16,000. Quarter after quarter, MicroStrategy suffered mounting losses due to bitcoin and Saylor stepped down as CEO, a position he had held since 1989.
“This stock has become disconnected from reality,” said Andrew Left, a prominent short seller and founder of Citron Research.
Left describes himself as bullish on bitcoin itself, praising MicroStrategy in 2020 when it first started accumulating bitcoin. But in a Thursday post on
Some analysts warn that MicroStrategy’s stunning run-up is part of a broader investor euphoria for speculative assets and will inevitably collapse. David Trainer, founder of research firm New Constructs, said MicroStrategy is a bad business by conventional standards; for example, it has posted a net loss for the past three quarters.
Michael Saylor’s heavy use of borrowed money to buy bitcoin backfired during the 2022 crypto market collapse. – Alyssa Schukar for WSJ
“It is symptomatic of a market that has become obsessed with the belief in get-rich-quick schemes,” Trainer said. “If you like bitcoin, buy bitcoin. But don’t invest in a company that loses money and also buys bitcoin, because then you have more or less doubled your risk.”
Some traders say a key part of the stock’s appeal is its volatility, which can help boost their profits over a short period of time.
Garrett Shirey, a hairdresser in Florence, Alabama, bought a share of MicroStrategy for $436.53 in his retirement account on Tuesday afternoon and sold it for $472.40 on Wednesday morning, making a quick profit.
Unable to buy bitcoin in his Roth IRA account, the 39-year-old crypto enthusiast had to make do with bitcoin proxies like MicroStrategy stock and bitcoin exchange-traded funds. He owns some shares of the Bitwise Bitcoin ETF.
“I don’t think bitcoin is up 8% in the last 24 hours, but MicroStrategy is,” said Shirey, who has been investing in cryptocurrencies since the pandemic.
Garrett Shirey has been investing in cryptocurrencies since the pandemic. -Anna Claire Taylor
Saylor said he came up with the bitcoin strategy in 2020 when Covid-19 forced lockdowns and the Federal Reserve cut interest rates to zero. MicroStrategy competed with technology giants like Microsoft and fell behind. The company was under pressure to return cash to shareholders through share buybacks and dividends.
“It was a quick death or a slow death, or you had to take a risk and do something out of the box,” he said.
Saylor has often boasted about MicroStrategy’s volatility. “If you embrace volatility, you outperform the S&P,” he said during last month’s earnings call.
MicroStrategy’s volatility has helped the company find willing buyers for the repeated issuance of convertible bonds — debt that can eventually be converted into equity if the stock price rises to a certain level. Such bonds are often bought by hedge funds that protect themselves against a stock price collapse by shorting or betting that the stock will fall. Such funds typically do not focus on whether the company is a good long-term investment, but instead try to take advantage of the stock’s volatility.
MicroStrategy is an attractive trade for convertible bond brokers, says Vadim Iosilevich, a veteran hedge fund trader in New York.
“We can certainly agree that volatility will be there,” he said.
Some investors are turning to ETFs looking to boost the returns of MicroStrategy stock using borrowed money or derivative contracts. One such fund, the Defiance Daily Target 2x Long MSTR ETF, aims to double the stocks’ daily returns and has attracted $1.8 billion in assets since its launch in August. Other funds allow traders to place reverse bets.
Chase Furey turned $700,000 of his parents’ retirement assets into $1.8 million by investing in MicroStrategy and a related leveraged ETF. -Chase Furey
Chase Furey, a 25-year-old trader in Newport Beach, California, said he started buying bitcoin-related stocks in October, including Coinbase Global, MicroStrategy and BlackRock’s bitcoin ETF. Hoping to boost profits, he moved all of his investments, worth about $112,000, to the Defiance ETF and has grown his portfolio to about $400,000.
The Harvard graduate, who studied economics in college, convinced his parents to let him manage $700,000 of their retirement assets. He said he came up with a “less dangerous and smarter” plan for them, investing 27% of their portfolio in the Defiance ETF and the rest in MicroStrategy stock. The money has more than doubled to $1.8 million, he said.
“I think bitcoin could hit $400,000 and I think MicroStrategy could potentially be 10 times what it is now by the end of next year, so that’s kind of my plan with that,” he said.
Even some bitcoin bulls have expressed concerns about the risks investors face by betting on MicroStrategy. Mike Novogratz, the billionaire CEO of crypto trading firm Galaxy Digital, warned in an interview on CNBC on Thursday that Bitcoin could fall 20% after a peak of $100,000, partly due to leveraged bets on MicroStrategy available through some on the exchange traded funds.
“The crypto community is being squeezed right now, so there will be a correction,” Novogratz said.
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