MicroStrategy: Riding the Bitcoin Rocket

MicroStrategy is a fascinating beast in the corporate jungle. On one hand, it’s a software company (and has been since 1989); on the other, it’s also the world’s largest corporate holder of Bitcoin, with more of the stuff than most people can comprehend. But in the current Bitcoin bull run, as prices skyrocket, MicroStrategy’s dual identity is raising eyebrows. Can a company built on software survive as its software revenue flatlines and its balance sheet leans heavily on the cryptocurrency that made its CEO, Michael Saylor, a digital gold evangelist?

Part 1: MicroStrategy’s Split Personality

MicroStrategy used to be a straightforward story: enterprise analytics software, steady (if unremarkable) growth, and a respectable niche in a competitive industry. Enter 2020: Michael Saylor decided Bitcoin was the lifeboat for a sinking dollar. What followed was a corporate pivot so dramatic it makes other corporate strategies look like toddler yoga.

Today, MicroStrategy owns a jaw-dropping 386,700 Bitcoin (as of November 25 2024). It’s like someone decided to run a lemonade stand and spent their profits on an orchard that produces the world’s rarest lemons. The company’s Bitcoin holdings are now worth over $35 billion. Meanwhile, their software business revenue? Flat as Kansas.

Part 2: Debt, Taxes, and Bitcoin: The Big Three Concerns

MicroStrategy didn’t just find $35 billion under the couch cushions. It borrowed — a lot. With billions in debt financing fueling their Bitcoin acquisition spree. And while this gamble has paid off so far, there could be a few problems looming on the horizon:

1. Cash Flow Cliffhanger
   The software side of the business is stagnant, generating about $500 million annually in revenue. That’s fine if you’re just running a software business, but not if you’ve got billions in debt tied to Bitcoin’s performance. Analysts are asking: How does MicroStrategy plan to cover its interest payments and operational expenses when cash flow is this tight?
2. Tax and Accounting Landmines
   Future tax liabilities on Bitcoin sales could be massive, and accounting rule changes now require companies to report Bitcoin impairments even if they don’t sell. This creates a bizarre scenario where paper losses can wreck earnings reports, even as the value of Bitcoin rises. It’s accounting jiu-jitsu that few companies want to deal with.
3. Debt Domino Effect
   Debt is fine…until it’s not. If Bitcoin’s price drops significantly, MicroStrategy could face a liquidity crisis. Refinancing debt or issuing new shares are options, but neither is ideal.

Part 3: Stock Price: A Rocket Fueled by Bitcoin Dreams

Here’s where it gets weird. Despite these challenges, MicroStrategy’s stock has surged 80% in 2024, largely due to Bitcoin’s rally. Investors seem to care less about the company’s underlying business and more about its Bitcoin holdings. At this point, buying MicroStrategy stock feels like buying Bitcoin with extra steps.

But this optimism comes with a big caveat: Michael Saylor has made it clear that selling Bitcoin to cover expenses is off the table. The guy once tweeted, “#Bitcoin is hope,” so don’t expect him to sell the company’s hope reserves anytime soon.

Part 4: What Happens Next?

MicroStrategy has options if cash flow becomes a crisis:

• Raise Capital: Issue new shares, though that dilutes existing shareholders.
• Leverage Software: Try to breathe new life into the software business (unlikely given recent trends).
• Sell Bitcoin: The nuclear option that Saylor probably won’t touch unless the company is circling the drain.

In a way, MicroStrategy is a grand experiment. It’s not just a company — it’s a test of whether Bitcoin can act as a corporate treasury asset. If Bitcoin keeps climbing, MicroStrategy looks like a genius move. But if Bitcoin falters, the company’s debt and stagnant software business could spell disaster.

MicroStrategy is walking a tightrope, and its safety net is made of Bitcoin. For now, the market is cheering them on, but the applause could turn into gasps if Bitcoin’s price stumbles. Whether this bold strategy becomes a Harvard Business School case study or a cautionary tale depends entirely on a single question: Can Bitcoin save a company built on software?

Only time will tell.

Sources:

1. MicroStrategy SEC Filings
2. Bitcoin pricing data from CoinMarketCap
3. Analyst commentary on MicroStrategy from Bloomberg and The Wall Street Journal
4. Statements from Michael Saylor’s public interviews and social media