Michael Saylor: Prophet or Charlatan?

by James A. Bacon

Great cover story in Virginia Business magazine this month: MicroStrategy CEO Michael Saylor’s $2 billion gamble on bitcoin.

I’m glad to see this story. First, it represents a return to the kind of business journalism Virginia Business did when I was editor and publisher many eons ago, when we wrote about Virginia’s most consequential and controversial CEOs. This story is the best read about a Virginia entrepreneur that I have come across in literally years.

Second, the story explores a topic of great fascination — cryptocurrency. With my libertarian leanings, I am sympathetic to the vision of cryptocurrencies such as bitcoin as an alternative to the fiat money created by central banks. As the U.S. indulges in ever-growing deficit spending and amasses a national debt that can never be repaid, the Federal Reserve Bank will face mounting pressure to inflate away the debt. Just one problem: I don’t see bitcoin as an alternative currency. With its wildly gyrating prices, it is not a stable store of value. Put your bitcoin in the bank, and you have no idea what it will be worth tomorrow.

There’s no question, though, that Saylor is a visionary CEO. He was a sensation during the dot.com era when his company, MicroStrategy, became a darling of tech stock speculators. Saylor was one of the first evangelists for data mining, recognizing that enormous value could be extracted from big data. MicroStrategy stock price soared to insane levels — Saylor’s net worth reached $13.5 billion before collapsing. MicroStrategy survived the dot.com bubble and went on to build a respectable data mining business. Today, data mining, which merges into artificial intelligence, is arguably the hottest of hot tech sectors on the planet.

MicroStrategy began binging on bitcoin last summer, announcing in August that it had used its growing cash cache to buy 21,000 bitcoins for $250 million. It invested another $175 million a month later. And in December, the company issued $650 million through a convertible debt offering to purchase even more. As of mid-April its bitcoin holdings were worth almost $6 billion.

Right now Saylor looks like a genius. He taps a profound and spreading unease with inflationary central bank policies around the world. By his calculations, the increase in the U.S. monetary supply devalues the dollar by 15% a year. He refers to cash as “trash” and a “melting ice cube.” He calls bitcoin “digital gold,” while saying also that it will outperform gold. A recent article in Time delves deeper into his thinking than Virginia Business (with whom he declined to be interviewed.)

Responding to the suggestion that the surge in bitcoin prices might be an example of “irrational exuberance,” Saylor responded that, no, it’s the opposite.

It’s a textbook example of a rational action in response to monetary inflation. Can we agree that the money supply is expanding in an unprecedented fashion the past 12 months everywhere in the world? If you’re going to make a rational investment decision today, whether you’re a real estate investor, a stock investor, a bond investor, or just a wage earner or you’re a treasurer, you have to estimate the rate of monetary expansion for the next eight years. We know there’s a commitment to run deficits, and we know this commitment to stimulus.

So now the issue is, What’s a rational behavior? I’ve got to find a store of value. If you’re looking for an example of real speculation, it would be people speculating upon whether they can squeeze others in a short squeeze and a small stock, like GameStop. Bitcoin is not speculation, O.K.? Bitcoin is a unique new technology, it’s like the Facebook of money or the Google of money. And it grew from nothing to a trillion dollars in monetary value in 12 years.

Virginia Business

quotes David Bieri, organizer of Virginia Tech’s annual blockchain (the technology that underlies bitcoin) symposium, as saying that the cryptocurrency is “very prone to crises and bubbles.” The digital currency has no intrinsic value. Its price undergoes wild swings that ordinary investors can’t begin to explain. Perhaps most tellingly, Bieri suggests that the rise of quantum computers poses an existential risk to blockchain at some point in the future.

In a great irony, the success of bitcoin, which is touted as a hedge against central bank monetary manipulation, is to a large degree a product of central monetary manipulation. Central banks are flooding the world with liquidity, suppressing interest rates, and forcing investors to take greater risks. 

I have no idea what the future holds for cryptocurrency. I do know one thing, though. I’ll never invest in it. I don’t invest in anything I don’t understand, and I don’t understand blockchain or cryptocurrencies. I’m quite confident that in a highly speculative asset class like cryptocurrency the “greater fool theory” applies — and that I will be the greater fool.

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21 responses to “Michael Saylor: Prophet or Charlatan?”

  1. John Harvie Avatar
    John Harvie

    Ahh yes. You are right, of course however when Bitcoin hit $61k the other day before sliding a bit, I lamented my decision not to buy a coin at about $900 some time ago. I chickened out thinking it grossly overpriced at the time.

  2. Nancy Naive Avatar
    Nancy Naive

    I dunno. I can’t figure it out. Every damned time the socialist Democrats gain power, I make barrels of money. Then the conservative Republicans crash the economy with tax cuts. Bush41 was right! Voodoo economics.

    1. James Wyatt Whitehead Avatar
      James Wyatt Whitehead

      What about Bush 41 and broccoli economics?

    2. DJRippert Avatar

      You made a lot of money when Carter was president? Did you short the US dollar? Might be a good idea again.

      1. Nancy Naive Avatar
        Nancy Naive

        Actually yes. I graduated May 1976 and took a job in July at $8300/yr. By Nov, my contract was won by CDC who paid me $11,000/yr. In April 1977, CDC restructured it’s new hire salaries and those with the company less than 2 years, and I was making 16,500/yr. I changed companies in August 1981 and started at $28,000/yr.

        So, yes. Yes, I did.

        On the bad side, in 1979, my first mortgage came at 9.75%.

        But on the national side, Reagan tripled the national debt at a time when the prime rate was running up to 11%, but mostly around 8%.

      2. Nancy Naive Avatar
        Nancy Naive

        Oh an amusing story. The year I bought my house, the future ex and I visited the folks. We were sitting at the table when Dad said, “I almost did the dumbest thing in my life.”

        “Aside from me?”

        He had gone to the bank to pay off his 1964 mortgage with a 1979 2-yr CD that was fixing to rollover. It hit him while he was standing in line.

      3. Matt Adams Avatar
        Matt Adams

        DJ is it scary to you that someone who “taught” math is conflating making money with the results of inflation in the 70’s?

      4. Nancy Naive Avatar
        Nancy Naive

        It has been suggested that inflation from 1976 to 1981 would account for all increases in income.

        Well, inflation would have cut the rate of income increase, but to be the sole cause, inflation for those years would have an average annual rate of 27.5%.

        This is an easily calculated value to any idiot with a civil engineering degree.

        1. Matt Adams Avatar
          Matt Adams

          Your salary doubled when the dollar became a fiat currency under Nixon, because it was devalued. Your buying power remained the same regardless of the increase of your wages.

          The inflation between now and 1971 is 554.56%, ala $100 dollars in 1971 == $645.56 today.

          The inflation rate between now and 1976 is 369.29%, ala $100 dollars in 1976 == $469.39 today.

          The inflation rate between now and 1977 is 347.63%, ala $100 dollars in 1977 == $447.63 today.

          Not to mention who has a civil engineering degree and if they are “idiots” what does that make you, since they would have achieved a higher academic education than yourself?

          1. Nancy Naive Avatar
            Nancy Naive

            Nixon was president in 1976? Poor Ford.

            Okay, so a dollar in 1976 is $4.69 in today’s money. What’s your point? That you’re capable of using an online inflation tool?

            What did any of that have to do with the 5-year period of 1976 ending 1980?

            For those years, just eyeballing the numbers at https://www.multpl.com/inflation/table/by-year
            I get average annual inflation rate of 8.35%.
            That’s still smaller than 28% per year.

          2. Matt Adams Avatar
            Matt Adams

            Did I say Nixon was President in 1976?

            It showed the progression of inflation.

            Your point? That you still seem to have an issue acknowledging that not only were you overpaid but you also don’t understand buying power or CPI.

          3. Nancy Naive Avatar
            Nancy Naive

            The question was “Did you make money when Carter was president?” (1/77 to 1/81). The answer is “Yes” even factoring in the loss of buying power to inflation. All of your blathering about 50, 44 and 43 years of inflation is not germane. Hell, you might as well throw in any change in tax brackets too, although you’ll also have to consider something in those days called “income averaging” if you do.

            Either way you look at it, over that epoch, my disposable income rose, and significantly, and Carter was president.


          4. Matt Adams Avatar
            Matt Adams

            “The question was “Did you make money when Carter was president?” (1/77 to 1/81). The answer is “Yes” even factoring in the loss of buying power to inflation.”

            The answer is no, you received promotions and or merit raises along with inflation.

            “All of your blathering about 50, 44 and 43 years of inflation is not germane.”

            Umm sure it is, ask any economist.

            “Either way you look at it, over that epoch, my disposable income rose, and significantly, and Carter was president.”

            But it didn’t nor was it directly tied to anything that FPOTUS Carter or his policies did.

            I don’t have a problem concentrating, I think you have a problem with reality.

          5. Nancy Naive Avatar
            Nancy Naive

            Okay hatt.

    3. LarrytheG Avatar

      What the GOP gets wrong about the economy is that they treat taxes as if they are collected and go into a black hole and not back into the economy.

      In the real word – taxes are the government taking that money and deciding where to spend it – but it goes right back into the economy including creating DIFFERENT jobs. Like a new bridge instead of a Maserati.

  3. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    I am glad to know that there is someone other than me that will admit he does not understand cryptocurrency or blockchain technology. I have this uneasy feeling that some speculator out “there” is running up the value of bitcoin with the idea of jumping ship at some point.

    Cryptocurrency is a symptom of what is wrong with the whole financial market now. It is all basically sophisticated gambling. Hedge fund managers and their like are getting rich, not by creating any value, but by betting on stock and other financial instruments that themselves have only a marginal relationship to value.

    1. Matt Adams Avatar
      Matt Adams

      Something about investing in a highly volatile, unregulated hackable currency just don’t do it for me.

  4. DJRippert Avatar

    Multiple, complex issues. Should a publicly traded technology company be trading in bitcoin (to a material extent)? It’s working so far. MSTR is up from $425.22 at the start of 2021 to $603.00 today.

    As for cryptocurrency and blockchain – separate those things in your mind. Build a high wall between them. Yes, cryptocurrencies are usually based on blockchain but blockchain is used for lots of applications. WalMart uses blockchain to track food on its shelves back to the fields where the food was grown, for example.

    Regarding inflation, Boomergeddon may be coming true.

    Last weekend, Warren Buffet said at Berkshire Hathaway’s annual meeting that his conglomerate is seeing “very substantial” inflation. Just today, Treasury Secretary Janet Yellen said that interest rates may have to rise to cool an overheated economy. The economy is overheated, of course, because of government actions – printing and distributing money. Last Wednesday the Fed declined to let up on its easy money policy and decided to keep short-term interest rats near zero.

    If there is one thing to know about bitcoin it is that the currency has a set maximum of 21 million coins. The way bitcoins are mined is too complex an area for a comment. However, in 2017 it was estimated that the 21 millionth bitcoin would be mined in 2040. The assumption was that the rate of mining would halve every four years.

    Unlike the US dollar, which is controlled by egomaniacal politicians looking to get reelected, bitcoin has a ceiling.

    It would not be at all beyond the mental confusion of Joe Biden to preside over another round of stagflation. Biden even looks a bit like Jimmy Carter.

    But what should Virginia do?

    The US Constitution prohibits states from coining their own money. However, it does not prohibit the states from using foreign currency – presumably including bitcoin or other cryptocurrencies.

    If Virginia really believes, like Warren Buffet and Janet Yellen, that significant inflation is just around the corner, it should consider converting some or all of its Rainy Day Fund to cryptocurrency. If the inflation comes to pass, money will move into cryptocurrency as a hedge against dollar devaluation. If inflation does not come to pass then Virginia will be subject to the ups and downs of cryptocurrency.

    So, are you feeling lucky, punk … ?

    1. LarrytheG Avatar

      you were good until here: ” Unlike the US dollar, which is controlled by egomaniacal politicians looking to get reelected, bitcoin has a ceiling.”

      who sets that ceiling?

      On inflation.

      What Biden is talking about spending – he’s taking about raising taxes to pay for it so it does not create more debt.

      So where is the inflation coming from?

    2. John Harvie Avatar
      John Harvie

      No thanks with that EPS and PE off the continental shelf.

    3. Nancy Naive Avatar
      Nancy Naive

      Bitcoin is “better’n most”. It’s at least been around for awhile, and well, that means something in a “currency” that 3 geeks could create with less than an hour’s work.

      It’s just a ledger sheet.

      Here: you’ll like this…

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