Bitcoin Is Falling Hard, And One Psycho Has the Power to Nuke It Straight to Hell

Welcome to the existential dread overhanging the entire crypto market.

It used to be that the complex organization of his Bitcoin buying spree still provided investors with some logic to purchase MSTR shares and for debtors to lend him money, but no longer. The way that Saylor has bought Bitcoin has led him to suggest that Microstrategy can survive an 80 percent to 90 percent Bitcoin drawdown, which is probably true. I won’t get too deep into the financial weeds because I barely get them, but to see how thoroughly fucked this company is, you have to understand the flywheel they built that now is not flying nor wheeling.

Microstrategy once traded at a premium to its Bitcoin holdings unlike now where it is worth less than its Bitcoin. Saylor could sell new MSTR equity, issue convertible notes and cheap debt to supplement it, then take that capital he raised to buy more Bitcoin effectively with house money. This meant that Microstrategy’s Net Asset Value rose along with Bitcoin’s, and subsequently turned Saylor into a lunatic convinced he cannot lose. This is called a flywheel where you try to build self-propelling inertia into a financial scheme, and here, the premium above Saylor’s BTC holdings is designed to grow as the market bid for MSTR inflates. As MSTR’s value inflates, Saylor can raise more capital even cheaper and buy more Bitcoin and expand the premium and keep hacking this flywheel dynamic that has been very successful for him.

Until now. Why would you invest in Michael Saylor’s Bitcoin delusions when you can just do it all on your own with IBIT or any of the other Bitcoin ETFs?

This whole scheme depends on MSTR shares trading at a premium to its BTC holdings. It doesn’t work without it. Now its BTC holdings surpass MSTR’s market cap, and the flywheel is gone while MSTR begins to circle the drain. To put in perspective how badly this scheme is failing, here is the chart of BTC with MSTR imposed on it along the same percentage gains. This vehicle for BTC exposure can’t even share the same chart with BTC (in white) as you see below, as Microstrategy (in orange) is currently collapsing and since last November, is down almost 19 percent against the thing it’s supposed to track. This is, as we say in finance, a turbo fucked chart.

A lot of people have got the analysis of Saylor’s scheme backwards, as the threat to Saylor’s Bitcoin holdings isn’t in a Bitcoin crash. This is because so much of this debt matures long term and was issued when interest rates were lower, so it’s hard for Bitcoin alone to put him in position to become a forced seller. What could make him a forced seller however, is a credit crunch in an economic pullback that will also hit Bitcoin.

If you look into Microstrategy’s latest capital raise, there is a provision in there which states that if the company does not pay the 10 percent dividend on time promised to investors, those people will effectively receive an IOU for a later date. A 10 percent dividend is also quite high and reflects the level of risk investors are being asked to take. This is a window into Microstrategy’s primary concern, which is cash flows and keeping the lights on. Its flywheel model doesn’t fly anymore, as the market is telling Michael Saylor that without his BTC holdings, his company isn’t worth jack shit and actually carries a risk premium that devalues its BTC holdings.

So Saylor’s existential threat isn’t a Bitcoin crash. He’s done a pretty good job insulating himself from it. His problem is rooted in capital markets, and who the hell would lend him money when his central value proposition doesn’t work anymore. If his creditors pull the plug on him, that is when he may be forced to sell his mountain of Bitcoin.

Capital markets are already feeling a bit of a squeeze these days, and should the AI bubble burst, credit everywhere would dry up. When Microstrategy traded at a premium to its Bitcoin holdings, it was an attractive customer for creditors, now it isn’t. Should the AI bubble burst and we fall into a recession, debt markets would dry up. During a deep pullback, there is a flight to safety, and a company that is worth less than its Bitcoin holdings is the furthest thing from safety.

So in this scenario where the AI bubble bursts, capital markets dry up, and Bitcoin pulls back, this is where Saylor could become an existential threat to the crypto markets. He will need to raise cash to survive, and these latest dividends with built-in IOUs already suggest a company concerned about raising capital in a world where its Bitcoin premium is gone. It will cost him far more to raise money in this new era, and it could back him into a corner where Saylor’s least expensive option to raise money to keep the company alive is to sell his Bitcoin he’s told everyone he’s never selling.

And we’re closer to this reality than Saylor wants to admit. Microstrategy says their average Bitcoin cost is at a price of $74,433, which means that if Bitcoin falls below that price, they will be losing money on their Bitcoin holdings worth more than their company. These are the types of situations where things can spiral out of control, and if credit completely dries up for Saylor, his only option to raise money for his company may be selling Bitcoin. Michael Saylor may be right that he can withstand a Bitcoin only drawdown of 80 to 90 percent, but it is very dubious he could withstand that kind of drawdown amidst a larger economic pullback where credit dries up. Should he ever have no other choice but to sell his Bitcoin to keep Microstrategy’s lights on, Saylor himself could be the catalyst for that 80 to 90 percent Bitcoin drawdown.