In four years, MicroStrategy's market value has increased nearly 80 times. From being obscure to becoming the most dazzling player at the forefront, MicroStrategy has relied on Bitcoin with one hand and leverage with the other, becoming the new "story king" of US stocks, even overshadowing Nvidia.
But looking back at history, you will find that the company initially had nothing to do with cryptocurrency. Its CEO, Michael Saylor, is a visionary person. At the age of 30, his favorite activity was to bring a date to the office each week and hand her a book to read while she worked.
After work, Michael Saylor would read a two-inch thick tome on the history of Western civilization at midnight. His friends and colleagues candidly stated that he would rather spend his weekends building "the next Oracle" than pursuing romance or playing golf at clubs.
History has its own paths to the future, and Michael Saylor likely found a new understanding of currency in the long course of human history. After the outbreak of the COVID-19 pandemic in 2020, he made a bold bet on Bitcoin—continuously buying with the company’s cash flow while also leveraging to the extreme. This year, MicroStrategy became the company with the most Bitcoin, even surpassing the US government.
The subsequent events are well-known; as Trump came to power and Bitcoin prices soared, foreign media predicted that Michael Saylor is likely to surpass Musk in the future to become the world's first trillionaire.
What exactly is MicroStrategy? Why has its stock price risen so quickly? Will it become the largest "Ponzi scheme" of the 21st century?
The Rise of MicroStrategy
MicroStrategy was founded in 1989 by Michael Saylor and his MIT classmate Sanju Bansal. After receiving a $250,000 investment from DuPont, MicroStrategy began to delve deeply into the fields of data mining and predictive analytics.
The company primarily helps businesses better understand market trends and customer behavior. Its decision support software acts like an automated advisor, assessing a company's strengths by analyzing the vast data in computer "warehouses."
A typical case is that the home goods giant SC Johnson Wax relies on MicroStrategy's software to show retailers that its products (including Raid, Pledge, and Drano) sell faster than competitors. At that time, Saylor said MicroStrategy's goal was to "give every company a crystal ball."
By 1996, the list of 150 companies collaborating with MicroStrategy included Crestar Financial Corp, Giant Food Inc, AT&T Corp, Johnson & Johnson, Merck, among others. From 1990 to 1996, MicroStrategy maintained a 100% growth rate every year, reaching revenues of $25 million in 1996.
"Mike is a business genius; he instinctively knows what to do and how to efficiently achieve his goals," said Terry Priebe, who worked with him, in an interview with The Washington Post.
However, the internet bubble ultimately dealt a heavy blow to MicroStrategy. In March 2000, MicroStrategy announced that it needed to restate its financial reports from 1998 to 1999 because its revenue recognition methods did not comply with accounting standards. After the announcement, coinciding with the burst of the internet bubble, investor confidence collapsed, and the company’s stock price plummeted 62% in one day, ultimately falling over 90% in the following months.
MicroStrategy's revenue from its main business (excluding the appreciation of Bitcoin) has not grown at all, and it can almost be qualified as a company that relies on "dreams" to sustain its valuation.
The key question is, since the main business doesn't earn much, where does the money for buying Bitcoin come from? The answer is entirely from debt leverage.
On one hand, MicroStrategy issued convertible bonds worth over $3 billion this year; on the other hand, MicroStrategy plans to raise a total of $42 billion over the next three years, half from equity financing and the other half from issuing fixed-income securities. All this money will be used to purchase Bitcoin.
As MicroStrategy raises a large amount of funds to purchase Bitcoin, its control over Bitcoin prices will continuously increase. As long as everyone holds onto their Bitcoin, the price will keep rising, and ultimately, MicroStrategy's stock price will also continue to rise.
Trump's youngest son even predicted that Bitcoin would reach $1 million. For Trump, the price of Bitcoin seems to have become tied to his governance achievements. From this perspective, it may be difficult to see a "collapse" in Bitcoin prices in the short term.
Looking back at the history of Bitcoin over the past year, it has experienced multiple favorable events, such as the approval and trading of ETFs, the fourth halving, and Trump's election victory. Bitcoin seems to have shed its label as a "scam," becoming a coveted "prize" for major banks and tech giants with the unwavering support of the US president.