MIAMI — MicroStrategy may technically be in the business of enterprise software and cloud-based services, but CEO Michael Saylor says the publicly traded company doubles as the first and only bitcoin spot exchange-traded fund in the U.S.
“We’re kind of like your nonexistent spot ETF,” Saylor told CNBC on the sidelines of the Bitcoin 2022 conference in Miami.
So far, the Securities and Exchange Commission has only approved ETFs that track contracts speculating on the future price of bitcoin, instead of the cryptocurrency itself. The commission has refused to greenlight any of the formal applications for a pure-play bitcoin-based ETF — a financial instrument that would give investors the chance to invest in bitcoin without having to go through the motions of signing up for an exchange, opening a crypto wallet, or dealing with any of the other logistics involved with buying and holding bitcoin.
“If there was a spot ETF, you’d be paying a 1% fee, and it wouldn’t be leveraged. With MicroStrategy, we have a software company that generates cash flow, so we convert our cash flows into bitcoin,” continued Saylor, who says the de facto MicroStrategy bitcoin spot ETF generates a 4% to 5% tax-deferred yield.
MicroStrategy, which was launched by Saylor in 1989, has been adding bitcoin to its corporate balance sheet for the last two years. The company has now spent close to $4 billion acquiring bitcoin at an average price of $30,700.
Saylor doesn’t have any plans to stop buying bitcoin, which will only further grow MicroStrategy’s exposure to the digital asset.
“Why would we ever stop?” he said.
“As we generate cash flows, we think that the responsible thing to do for our shareholders is we convert currency which is devaluing, into an asset which is appreciating,” said Saylor, who also noted that MicroStrategy is not diversifying because he feels the company owes shareholders a consistent strategy.
“If you want to be 2% exposed to bitcoin, you’d put 2% of your portfolio into MicroStrategy, and the other 98% of your portfolio, you can invest in whatever you want. They don’t want the CEO of a publicly traded company to be unpredictable and random.”
Normalizing bitcoin-backed finance
When MicroStrategy first added bitcoin to its balance sheet in August 2020, it was a pretty unpopular thing to do.
This was back at the tail end of the crypto winter when the coin was trading in the low $11,000 range, and many institutional investors and big Wall Street banks remained bearish on digital assets.
But Saylor’s move soon proved prescient.
As bitcoin’s upswing began in earnest in October 2020, old-school, billionaire hedge fund managers like Stanley Druckenmiller reversed course and began buying bitcoin. Major companies like Tesla, Block (formerly Square), and insurer MassMutual also followed suit, plowing hundreds of millions of dollars into bitcoin.
This kind of mainstream adoption is hugely important, because cryptocurrencies like bitcoin aren’t backed by an asset, nor do they have the full faith and backing of the government. They’re valuable, in part, because people believe they’re valuable. So it goes a long way when bitcoin gets buy-in from some of the biggest names on Wall Street.
If you want to be 2% exposed to bitcoin, you’d put 2% of your portfolio into MicroStrategy.
Saylor’s evangelism of bitcoin has helped to make him an A-lister in the community. Throughout the Bitcoin 2022 conference, Saylor would traverse the Miami Beach Convention Center trailed by an entourage of fans, vying for a selfie with him.
Blue chip CEOs also look to the MicroStrategy CEO for a how-to on corporate adoption.
MicroStrategy has used company debt to purchase bitcoin, and in March, Saylor decided to take another step toward normalizing bitcoin-backed finance when he borrowed $205 million using his bitcoin as collateral — to then buy more of the cryptocurrency.
“We have $5 billion in collateral. We borrowed $200 million. So I’m not telling people to go out and take a highly leveraged loan. What I am doing, I think, is doing my best to lead the way and to normalize the bitcoin-backed financing industry,” said Saylor, who added that publicly traded crypto miner Marathon Digital also took out a credit line with Silvergate Bank.
“As people realize they can borrow against something, then they realize they never have to sell it, and then they start to stretch their time horizon from — ‘It’s a 36-month speculation,’ to — ‘It’s a 36-year holding,'” Saylor told CNBC.