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MicroStrategy, Inc. $MSTR made an odd corporate investment last summer by designating #bitcoin 
as its preferred treasury reserve asset and by allocating $425 million of its excess cash to $BTC at an avg price of $11,111.11. The position lost 7.3% since, down by 31 million.
0/n
as its preferred treasury reserve asset and by allocating $425 million of its excess cash to $BTC at an avg price of $11,111.11. The position lost 7.3% since, down by 31 million. 0/n
Recent commentary by $MSTR CEO @Michael_Saylor betrays that contrary to his claims, he wasn’t really looking for a safe & dependable asset to park treasury reserves. There’re many effective options for treasury reserves in traditional markets and resorting to #btc looks odd.
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looks odd.1/n
$MSTR framed the decision as if it was about safety of reserve assets, but in reality aimed: 1-to encourage other corporates with excess cash to follow their example (which in turn would hopefully boost the price of #bitcoin *after* they already established their position).
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*after* they already established their position). 2/n
The 2nd and more central goal: 2-to distract from the real issue $MSTR was suffering from: lacking attractive opportunities to generate a sufficient return on capital. For more than a decade $MSTR fell short in creating value as a public company & that was not sustainable.
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3/n
This is revealed by the CEO’s strange assertion his treasury assets were “melting like an ice cube” at an annual inflation rate of 10% to 25%! What he’s really complaining is the double-digit returns his tech competitors were generating, and $MSTR’s inability to keep up.
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4/n
The consumer price inflation in the US declined steadily over the past 30 years and averaged a meager 1.7% in the past decade. His true concern can’t be to protect his excess treasury reserves from price inflation (really easy to do even with near-zero treasury yields).
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5/n
His likely true concern: $MSTR’s long-underperforming businesses failed to generate an adequate return above $MSTR’s cost of capital (rate of return required by investors). At the rate his core business was performing, it wasn’t likely to survive or succeed in the long run.
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6/n
If $MSTR was a rationally-run company with half-decent corporate governance (and an effective board), this would have been resolved by returning the generated excess cash to shareholders over time and for the company eventually to wind down if it failed to reinvent itself.
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7/n
$MSTR clearly suffers from poor corporate governance, mainly due to its dual share structure. The CEO has a 25% ownership stake but holds 75% of the voting rights. If this wasn’t the case the management of such an underperforming company would’ve been replaced some time ago.
8/n
8/n
But even all the power in the hands of a dominant founder/CEO is not enough for an unviable business to operate indefinitely. He had to do something drastic or close shop. Sadly he didn’t choose the logical path and liquidate $MSTR to return the resulting cash to investors.
9/n
9/n
The CEO’s gambit was to turn $MSTR effectively into a crypto hedge fund by orchestrating a high-profile foray into #bitcoin . That was the key path to turn around the company that routinely failed to earn its cost of capital. Short of throwing the towel and closing shop.
10/n
. That was the key path to turn around the company that routinely failed to earn its cost of capital. Short of throwing the towel and closing shop.10/n
Basically a last-ditch (unwise & ethically questionable) gamble on #bitcoin as a chance for $MSTR to right its long-listing ship. The move is carefully orchestrated and dressed up as a legitimate attempt to earn a decent return on excess treasury reserves. It’s nothing but.
11/n
as a chance for $MSTR to right its long-listing ship. The move is carefully orchestrated and dressed up as a legitimate attempt to earn a decent return on excess treasury reserves. It’s nothing but.11/n
The game plan appears to be for $MSTR to benefit from the (long-shot) 10x+ rise in the price of #bitcoin and use the speculative windfall to save the company and its founder/CEOs “empire” from a dreaded failure. It is a high-stakes bet and unlikely to succeed.
12/n
and use the speculative windfall to save the company and its founder/CEOs “empire” from a dreaded failure. It is a high-stakes bet and unlikely to succeed.12/n
If the purpose was to prevent treasury reserves from melting away the 7.3% ($35 million) loss in 5 weeks is a clear failure in achieving this. If the purpose was to bet on price gains of $BTC to buttress $MSTR’s failing business, the company should have openly stated so.
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13/n
I predict $MSTR’s bitcoin gambit will not achieve its stated goal of preserving its treasury reserves. It has already missed that target by $35 million. The ulterior aim of turning the business around using speculative gains from #bitcoin is also unlikely to succeed.
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is also unlikely to succeed. 14/n
Instead of looking for an improbable miracle in bitcoin, $MSTR investors (incl. the founder/CEO) would have been better off extracting the excess cash from the company and return it to all investors. They can then each invest the proceeds according to their personal wishes.
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