The Highs and Lows of Being a Bitcoin Maximalist

a job. Case in point Michael Sailor, the co founder and former CEO of a software services firm called micro Strategy. But software isn't what made micro Strategy a household name among bitcoin believers. Instead, it was Sailor's decision to use the company's balance sheet to bet big on bitcoin all the way back in that really catapulted them into the headlines for a while. As bitcoin prices rallied, that two million dollar bet looked like a genius move. But as

prices fell, micro Strategy found itself facing significant losses. What does this all mean for micro Strategy and for Michael Sailor? For more? I'm joined by Bloomberg Senior editor Dave Litka. I believe he was on the back of the New York Post as this man lost six billion dollars of one day, and by Bloomberg accounting specialist Tom Kuntilliano, they bought four billion dollars worth of a big climb between

here and there to discuss exactly what happened. Well, it is a benefit of a place like Bloomberg where we can have, you know, two people with highly specialist and very different expertise to sort of combine into an episode about one of the most colorful people in a very

colorful universe of crypto folks. And that is none other than Michael Sailor, until recently, the CEO of a little company or not a little company called micro Strategy, And Dave, I would just like you to start from a place of it may well be that our listeners are very a way of Sailor. They're very aware of, you know, what a big proponent of bitcoin he was, but they don't know anything about who he was before that big bitcoin bet. Where did Michael Sailor come from? Sure? Great question.

Um Sailor has been a colorful character for a very long time, both on a local and uh in the business world sense on it. He's very a self made an amazing story. Was an Air Force sergeant's son ended up getting a scholarship to M I T. Graduated from there when in the industry, had some success there as a early software consultant and developer, broke off with some of his M I T buddies formed this business software company and took off from there and was worth billions

by the time he was in his thirties. And this was at heights of the first dot com boom? Is that correct exactly? He rode that wave company was doing great going into that did an I P O in nine and again it was worth about seven billion at his peak. Unfortunately, they ran into a counting issue about two thousand the slot crashed. I believe he was on the back of the New York Post as this man lost six billion dollars of one day and they ended

up settling. And uh, he actually settled into obscurity for a little while. Least the company did after that. Somehow. It's always an accounting issue. And so Tom, I'm gonna, I'm gonna, I'm gonna turn to you. So Michael Sailor, colorful character, you know, has experience in software sales and services, has experiences of creative accounting and turns up new company, co founder of something that's also a software services company.

It's called micro Strategy. Sure, great, all typical. What was a typical about micro Strategy as of a couple of years ago. I think what was a typical about micro Strategy was they, as Dave mentioned, they were sort of noon. I mean, I was in Northern Virginia at the time of the tech bubble. They were known as the company that went to the Sun and then came back and fell back. And it was until two years ago, unless you really were paying attention to markets, that the name

really popped up again. Um, and it popped up again in the context of bitcoin, and literally two years and a week ago, bitcoin finally appeared on an earnings release and became a separate strategy from from just being a

software intelligence company. And as of when that happened, were they the first company to have bitcoin appear in a balance sheet as far as you're aware, right around the same time you had Tesla and and Square were also the two companies publicly traded companies that made it part of their their treasury um as well too, and that they weren't crypto companies. In and of themselves, but they were engaging in crypto. So they were engaging in crypto.

But it seemed like micro Strategy, despite having as other actual business and software services, really became known for its bitcoin bets. Yeah. I mean two years ago they were a billion dollar company. Within six months of getting into crypto, they seared twelve cks there were there over twelve billion for a little while, um, and nothing had really changed too much about the software business, but their their position and bitcoin has only gotten bigger since then. And Dave,

this is for you. It sounds like they were perceived as like a bet on the direction of bitcoin, or at least the potential direction of bitcoin. Their stock was Yes, they basically became an investment play on or investment fund to bet on bitcoin without actually buying bitcoin. Sailor again rose the prominence mostly through social media for a lot of crazy sayings and doubts about what bitcoin and how would change the world, and people bought it, and for

a while it looked like he was right right. I mean there if you look at sort of bitcoin charts and a micro Strategy charts, it was like they were the same chart for a minute there. But the problem with that correlation is then bitcoin prices started going in the other direction. That was not so helpful for them. And Tom, what happens when you have bitcoin on your

balance sheet and the price of bitcoin suddenly starts going down. Yeah, the accounting for for bitcoin is a little little crazy in that it's it's really the accounting for acquisitions, for for buying another company that that we're using right now for bitcoin. So hang on a minute. You're telling me, there's no like specialist this is how you account for crypto. It's like, this is how we account for other stuff,

and we're gonna apply that to crypto exactly. It's being considered now by the governing body by fazz BE that they will possibly come up with a tailored accounting for it. But right now, long and short of it is, if the value of crypto falls below what what micro strategy bought it for, they have to write it down. They have to write down the value of the asset, and and it goes only in one direction. It doesn't come back if if crypto should rebound, they don't get the

benefit of that, at least on their balance sheet. So, Tom, what I'm hearing from you is even if bitcoin were to go, you know, as they say, to the moon again, micro Strategy would still have what looks like a hole on their balance sheet. Yeah. From a financial statement perspective, I mean they're number one. They're they're writing down bitcoin pretty much every quarter since they've owned so their earnings have been horrendous as a result, even though Bitcoin at

times has been a very profitable bet for them. And then in terms of what you're talking about, the the actual bitcoin itself on the balance sheet, all it does is disappear every time they have to write it down. So, um, they've written down more than half of the roughly four billion dollars a bitcoin that they've bought since since they began this for a and just so because sometimes accounting and the real world seemed very far apart. When we talk about writing down an asset. It doesn't mean that

they've gotten rid of it. It just means that they're no longer considering it for accounting purposes. Yeah. Yeah, The accounting on that is that it's considered impaired, meaning that the value should never come back. But obviously, in the case of bitcoin, it it can come back in a moment's notice, So it doesn't really match the reality. Thankfully, micro strategy does provide a lot of information, so investors are able to figure out where they're where they truly

are positioned on a day by day basis. So from what I'm hearing from you, they made a bet on a bitcoin significantly benefited, you know, going from a billion dollar company to a twelve billion dollar company just on the strength of a two and fifty million dollar bets on bitcoin. And now they're being I suppose punished is too strong a word, but you know they're they're perceived.

If you're just looking at the numbers in a very specific way, how big do you think is the gap between where they're valued at right now and what you would consider or what maybe like accountants would consider it to be a fair value for the company. Look at the numbers, Like I said, they were about a billion dollar company before getting into crypto, and given that's just the value of the stock is just north of three billion, they bought four billion dollars worth of bitcoin between y're

in there. Uh that bitcoin is down as of today, it's down a billion dollars, right It's worth three billion dollars right now. Um, so it's sort of spotsle on. In other words, yeah, yeah, I mean, look, you can take the other the other flip side of the coin is it's already up half a billion dollars since the last quarter. Um, So it really depends on what the what the measurements are that you want to use up next.

You'll hear more from Bloomberg senior editor Dave Litka and from our accounting specialist Tom Contuliano all about Michael Sailor and micro Strategy. Micro Strategy is changing up its leadership. Michael Sailor, who co founded the company in nine nine, is giving up his CEO title, saying he will increase his advocacy efforts for holding bitcoin. Michael, great to have you with us, So talk to us about what drove this decision to move on from that CEO spot. Is

it the end of the bitcoin era for micro Strategy? No, No, it's the the getting of the bitcoin error. In kind of a blockbuster announcements as part of their last earnings, they said that he would no longer be the CEO of the company. Dave, what went down there? Well, they announced that he would now serve as executive chairman, and that triggered a lot of speculation. Okay, was he pushed because the bait went bad on it? It's still a

question that's unanswered. But he does the way they the common shares of the company are structured, he does still control the vast majority of the voting rights, so he's still his own boss on it. Um, but you would assume there has to be some pressure when you take a billion dollar quarterly loss and you look at the core business and sales are falling, right, So he's once again in a position where he is a person who looked like he lost a ton of money in a

very short amount of time. Sure, I would be surprised if there's many folks who have lost more than a billion dollars toy. I've been working with Fong on CEO succession for about four years now, and it's always been part of the plan. We finally got to the point where we had Andrew our new cfol on board and we could actually make the change in Pong told CEO.

So I think that the markets responding to the fact that now instead of two executives Sailor and Fong Lee, we have three executives, and um, it allows me to do what I like to do. Which is bitcoin advocacy, Bitcoin Acquisition. I'll continue to provide oversight for Bitcoin Acquisition. Is the chair of the Investments Committee of the board. I'll stay as a chair of the board. So he's still the controlling sharehold of the company. He's still the

executive chair of the board. What do we think is kind of a meaningful next step from a business perspective for micro Strategy, Tom, Like, do you think they're going

to go back to focusing on software? Is there a universe in which the attempt to you know, I've off the bitcoin owning section of the business, Like, what are some of the kinds of strategies that you've seen in the past with folks attempting to deal I mean, suppose there's no really an exact comparable, but you know where they're trying to isolate something that is no longer core or perceived as core. Yeah, but you could also take the opposite view that micro Strategy stock is almost tripled

since they got into bitcoin. Um, you could sit there as a chairman CEO of the new CEO and say this is this is wonderful. People a Bloomberg are talking about it. They're reading about a company that otherwise maybe they hadn't and investors who got in in August of two thousand and twenty that made an awful lot of money, including including the chairman. So I think he's been pretty consistent that they're in it to win it. And if you're on the micro Strategy bus at this point, you

know that you're you're staying with bitcoin. So the question is how how do you get more of it? Perhaps UM? Does that software business generate enough money that they can continue to buy based on the cash that throws off? Or is there some other way they've been creative and how they've they've made some bitcoin acquisitions to date, is there some other way that they haven't examined that that

they can get a little bit more in the coffers? Well, let's go back to the two other companies that you mentioned as having disclosed bitcoin on their balance sheets around the same time as micro Strategy, Right, so Tesla which has been exiting it's bitcoin position, UM and Square now known as block, which just from the name is like

really doubling down on their own crypto strategy. You know they're investing in UM technology related to crypto mining, for example, But have you seen kind of an uptick across the board, Like, are there many more than three companies now that are disclosing these kinds of holdings. I have not, And you know, Tesla. Anything with Tesla obviously generates a lot of headlines. Um. There. One, their initial one point five billion dollar acquisition of a bitcoin is a lot of money to the three of us.

But two, Tesla's business is it's a little bit of an afterthought. Um And like you said, they have sort of moved out of it. So I think there is a question whether public companies are going to follow this this this strategy that these three companies have embodied at some point in the last couple of years. David, I want to go back to something just about like Sailor himself.

You know, he is still personally fabulously wealthy as a as an individual, and it doesn't seem like recent events have dented his faith in in bitcoin specifically, or the perception that you know, many in the crypto and the bitcoin community have that this is a person who really

knows what he's talking about. Are there other people, you know, just in this kind of universe of like Sailor and Novograts, Are there other people who you're observing trying to lead their companies in kind of crypto friendly directions that we know we should be having a follow up conversation with

Tom about like six to twelve months. Well, the crash changed a lot of things, so he had a lot of people who were kind of flirting with the idea, and as Tom mentioned that, those those two companies and maybe a handful of crypto minors that type of thing. But now with the collapse of the price, they're struggling to just keep their head above water and stay in business. So the tone has really changed for everybody except for Sailor,

who hasn't deviated at all from his line. When Musk sold the shares for tesla Um last quarter, he bit responses, you left with what I get after I sell this, you're left with of bitcoin, and he hasn't deviated at all. So essentially, just to go back to Tom's earlier point, even though this current quarter and perhaps the quartes have come might look a little bit challenging from an accounting perspective, as far as Sailor is concerned, the fundamental bet was

the right one for micro strategy. Yeah, I mean, it depends what you're looking at right, they've made roughly two dozen purchases of bitcoin and what all but two or three of them are underwater. Um, the overall bet itself is is underwater by a billion dollars. So, um, it's a question of time. Um, you know, maybe crypto goes back up, maybe bitcoin goes back up, and suddenly that looks like a great long term bet. So we're waiting

on on when that happens, I guess. And just to kind of follow up on that point with the time made, the Sailor himself has been quoted and and but believe it even an interview with U with us that um, he had a tough choice to make. He knew his company wasn't growing at the pace it should be, and it was either do something different or die on it. And he chose something different. Yeah, and that is that's what CEO do. Write. Those are those a decisions they

try to make. We were very unfortunately not able to get Sailor himself for this episode. His folks let us know that he was traveling at the time that we were recording it. But Michael Saylor, if you're listening to this and you want to come on and and give us your perspective on this story. We would happily have you on the Crypto podcast. Well, thank you both for being here. I really appreciate you taking the time in the podcast. Tom, Dave a pleasure to have you. Thank you, Stacy.

You can find more of their reporting on the Bloomberg Terminal on Bloomberg dot com, or follow Dave Litka on Twitter. He's at d l I E D T k A. As always, it was another busy week on the Crypto beats. Join me tomorrow as I call on two of Bloomberg's senior editors for Crypto to break down what happened this week, what we're thinking about, and a little bit about what we're reading. This is Bloomberg Crypto, a daily podcast from

Bloomberg and I Heart Radio. For more shows from I Heart Radio, visit the I Heart Radio app, Apple Podcasts, or wherever you get your podcasts. Send us your comments, questions or suggestions for the show to Crypto at Bloomberg dot net or find us on Twitter. We're at Crypto. The supervising producer of Bloomberg Crypto is Vicky ver Galina. Our senior producer is Janet Babin. Our producers are Mohammed Farouk and Sharon Barrero. Associate producer is Thy Butler gesta

wonder At is our engineer. Original music by Leo Sidrin. I'm Stacy Marie Schmal We'll be back tomorrow.