Imagine this: Bitcoin crashes. Not a minor drop, but a complete nosedive. MicroStrategy, the Bitcoin rolling in corporate treasury doctrine progenitor, with its $14 billion Bitcoin treasury would be hit with a shocking write-down. Now shareholders who signed on to the business intelligence software are looking at seeing billions in potential losses. This confusion is due to the chaotic nature of the crypto space. Is this the cutting edge of corporate finance, or a complex, high-stakes bet with other people’s money?
Ethical Minefield or Bold Innovation?
Michael Saylor's conviction in Bitcoin is undeniable. After the price of MicroStrategy’s stock more than tripled since he began his Bitcoin buying spree in 2020. Most importantly, it has left the S&P 500 in the dust. You may be saying, “That’s great, it’s doing the job, what’s the issue? As every investment disclaimer shrieks, past performance is no promise of future returns. The sheer size of this bet invites scrutiny on fiduciary duty.
Think about it. When you invest in a company, it’s because you fundamentally believe in what that company is doing at their core. And that’s because you trust the management team to make responsible decisions that mutually benefit all shareholders. Sure, CEOs may not be able to easily reallocate R&D funds to their crypto pet projects (at least in theory). But are shareholders really aware of the risks associated with this speculative investment?
Proponents say these kinds of actions represent a violation of fiduciary duty. Treat corporate funds with the strictest fiduciary consideration. Invest in long-term stability, not speculative bets on volatile assets such as Bitcoin. This universe is infinitely more dynamic than the conservative world of traditional treasury management. In that alternate reality, the governance gods are pro-diversification and risk mitigation. A tech company putting essentially all of its liquid assets into one very volatile single asset. That’s not diversification, that’s doubling down on a hunch.
Cult of Personality and Echo Chambers
Let’s do a little truth-telling here, MicroStrategy is by and large, Michael Saylor. His vision, his conviction, his Bitcoin bet. We all know that while strong leadership is priceless, there’s a difference between vision and blind faith. Is there space for dissenting voices inside MicroStrategy? Or has Saylor built an echo chamber such that even questioning the Bitcoin strategy is tantamount to corporate heresy?
This concentration of power is concerning. Groupthink is a dangerous thing in general, particularly when billions of taxpayer dollars are at stake. We’ve been witness to this too many times in other contexts, whether with the dot-com bubble or the 2008 financial crisis. Missing critical thinking and fear of standing against the majority view result in terrible decisions.
It feels like tulip mania of 17th century proportions. People became blinded by the hype. They enthusiastically pushed tulip bulbs prices to absurd heights, only to see the bubble burst and their fortunes evaporate overnight. Are we seeing the same thing happen today with Bitcoin, driven largely by speculation and fear of missing out (FOMO) on riches?
Responsible Treasury or Reckless Gamble?
Meanwhile, Canadian Mogo Inc. recently declared its own $50 million Bitcoin treasury strategy, and their stock skyrocketed. Deutsche Bank AG announced plans to launch its own digital asset custody service. BitGo’s assets under custody have recently skyrocketed to $100 billion. Have we finally come upon the corporate finance parallel of a world-shifting new technology? Bitcoin treasuries Bitcoin is becoming a legitimate asset class for corporate treasuries. Here’s hoping that they are an encouraging sign of a more prudent corporate America that is increasingly prioritizing long-term stability over short-term gains.
The answer is not clear-cut. There is potential upside to MicroStrategy's strategy. As the world’s biggest holder of Bitcoin, if the cryptocurrency keeps heading up, the company will score monumental profits. The downside risk is equally significant. A significant Bitcoin correction would not only annihilate MicroStrategy’s balance sheet, but eliminate its shareholder value.
Ultimately, the question boils down to this: Is Saylor a visionary genius who's revolutionizing corporate finance, or a reckless gambler playing with corporate funds? That’s a question that should be thought through with great care. This is critical, not just for MicroStrategy shareholders, but for all those who have a stake in the future of corporate governance and prudent capital management. Sentiment among crypto traders has turned decidedly bearish, despite Bitcoin recently crossing the $110,000 mark. Is the tide beginning to turn, you ask hopefully? Is this a brave new world of corporate finance, or a disaster in the making destined to end poorly?
