Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
Speaker 1: and this is Bloomberg Crypto at Daily Bloomberg. I heard podcast.
Speaker 1: It's Thursday August. Some of the biggest and brashest figures
Speaker 1: in crypto have faced staggering losses in the current downturn.
Speaker 1: Multiple crypto companies have filed for bankruptcy, and more than
Speaker 1: one high flying crypto ceo has found themselves out of
Speaker 1: a job. Case in point Michael Sailor, the co founder
Speaker 1: and former CEO of a software services firm called micro Strategy.
Speaker 1: But software isn't what made micro Strategy a household name
Speaker 1: among bitcoin believers. Instead, it was Sailor's decision to use
Speaker 1: the company's balance sheet to bet big on bitcoin all
Speaker 1: the way back in that really catapulted them into the
Speaker 1: headlines for a while. As bitcoin prices rallied, that two
Speaker 1: million dollar bet looked like a genius move. But as
Speaker 1: prices fell, micro Strategy found itself facing significant losses. What
Speaker 1: does this all mean for micro Strategy and for Michael Sailor?
Speaker 1: For more? I'm joined by Bloomberg Senior editor Dave Litka.
Speaker 1: I believe he was on the back of the New
Speaker 1: York Post as this man lost six billion dollars of
Speaker 1: one day, and by Bloomberg accounting specialist Tom Kuntilliano, they
Speaker 1: bought four billion dollars worth of a big climb between
Speaker 1: here and there to discuss exactly what happened. Well, it
Speaker 1: is a benefit of a place like Bloomberg where we
Speaker 1: can have, you know, two people with highly specialist and
Speaker 1: very different expertise to sort of combine into an episode
Speaker 1: about one of the most colorful people in a very
Speaker 1: colorful universe of crypto folks. And that is none other
Speaker 1: than Michael Sailor, until recently, the CEO of a little
Speaker 1: company or not a little company called micro Strategy, And Dave,
Speaker 1: I would just like you to start from a place
Speaker 1: of it may well be that our listeners are very
Speaker 1: a way of Sailor. They're very aware of, you know,
Speaker 1: what a big proponent of bitcoin he was, but they
Speaker 1: don't know anything about who he was before that big
Speaker 1: bitcoin bet. Where did Michael Sailor come from? Sure? Great question.
Speaker 1: Um Sailor has been a colorful character for a very
Speaker 1: long time, both on a local and uh in the
Speaker 1: business world sense on it. He's very a self made
Speaker 1: an amazing story. Was an Air Force sergeant's son ended
Speaker 1: up getting a scholarship to M I T. Graduated from
Speaker 1: there when in the industry, had some success there as
Speaker 1: a early software consultant and developer, broke off with some
Speaker 1: of his M I T buddies formed this business software
Speaker 1: company and took off from there and was worth billions
Speaker 1: by the time he was in his thirties. And this
Speaker 1: was at heights of the first dot com boom? Is
Speaker 1: that correct exactly? He rode that wave company was doing
Speaker 1: great going into that did an I P O in
Speaker 1: nine and again it was worth about seven billion at
Speaker 1: his peak. Unfortunately, they ran into a counting issue about
Speaker 1: two thousand the slot crashed. I believe he was on
Speaker 1: the back of the New York Post as this man
Speaker 1: lost six billion dollars of one day and they ended
Speaker 1: up settling. And uh, he actually settled into obscurity for
Speaker 1: a little while. Least the company did after that. Somehow.
Speaker 1: It's always an accounting issue. And so Tom, I'm gonna,
Speaker 1: I'm gonna, I'm gonna turn to you. So Michael Sailor,
Speaker 1: colorful character, you know, has experience in software sales and services,
Speaker 1: has experiences of creative accounting and turns up new company,
Speaker 1: co founder of something that's also a software services company.
Speaker 1: It's called micro Strategy. Sure, great, all typical. What was
Speaker 1: a typical about micro Strategy as of a couple of
Speaker 1: years ago. I think what was a typical about micro
Speaker 1: Strategy was they, as Dave mentioned, they were sort of noon.
Speaker 1: I mean, I was in Northern Virginia at the time
Speaker 1: of the tech bubble. They were known as the company
Speaker 1: that went to the Sun and then came back and
Speaker 1: fell back. And it was until two years ago, unless
Speaker 1: you really were paying attention to markets, that the name
Speaker 1: really popped up again. Um, and it popped up again
Speaker 1: in the context of bitcoin, and literally two years and
Speaker 1: a week ago, bitcoin finally appeared on an earnings release
Speaker 1: and became a separate strategy from from just being a
Speaker 1: software intelligence company. And as of when that happened, were
Speaker 1: they the first company to have bitcoin appear in a
Speaker 1: balance sheet as far as you're aware, right around the
Speaker 1: same time you had Tesla and and Square were also
Speaker 1: the two companies publicly traded companies that made it part
Speaker 1: of their their treasury um as well too, and that
Speaker 1: they weren't crypto companies. In and of themselves, but they
Speaker 1: were engaging in crypto. So they were engaging in crypto.
Speaker 1: But it seemed like micro Strategy, despite having as other
Speaker 1: actual business and software services, really became known for its
Speaker 1: bitcoin bets. Yeah. I mean two years ago they were
Speaker 1: a billion dollar company. Within six months of getting into crypto,
Speaker 1: they seared twelve cks there were there over twelve billion
Speaker 1: for a little while, um, and nothing had really changed
Speaker 1: too much about the software business, but their their position
Speaker 1: and bitcoin has only gotten bigger since then. And Dave,
Speaker 1: this is for you. It sounds like they were perceived
Speaker 1: as like a bet on the direction of bitcoin, or
Speaker 1: at least the potential direction of bitcoin. Their stock was Yes,
Speaker 1: they basically became an investment play on or investment fund
Speaker 1: to bet on bitcoin without actually buying bitcoin. Sailor again
Speaker 1: rose the prominence mostly through social media for a lot
Speaker 1: of crazy sayings and doubts about what bitcoin and how
Speaker 1: would change the world, and people bought it, and for
Speaker 1: a while it looked like he was right right. I
Speaker 1: mean there if you look at sort of bitcoin charts
Speaker 1: and a micro Strategy charts, it was like they were
Speaker 1: the same chart for a minute there. But the problem
Speaker 1: with that correlation is then bitcoin prices started going in
Speaker 1: the other direction. That was not so helpful for them.
Speaker 1: And Tom, what happens when you have bitcoin on your
Speaker 1: balance sheet and the price of bitcoin suddenly starts going down. Yeah,
Speaker 1: the accounting for for bitcoin is a little little crazy
Speaker 1: in that it's it's really the accounting for acquisitions, for
Speaker 1: for buying another company that that we're using right now
Speaker 1: for bitcoin. So hang on a minute. You're telling me,
Speaker 1: there's no like specialist this is how you account for crypto.
Speaker 1: It's like, this is how we account for other stuff,
Speaker 1: and we're gonna apply that to crypto exactly. It's being
Speaker 1: considered now by the governing body by fazz BE that
Speaker 1: they will possibly come up with a tailored accounting for it.
Speaker 1: But right now, long and short of it is, if
Speaker 1: the value of crypto falls below what what micro strategy
Speaker 1: bought it for, they have to write it down. They
Speaker 1: have to write down the value of the asset, and
Speaker 1: and it goes only in one direction. It doesn't come
Speaker 1: back if if crypto should rebound, they don't get the
Speaker 1: benefit of that, at least on their balance sheet. So, Tom,
Speaker 1: what I'm hearing from you is even if bitcoin were
Speaker 1: to go, you know, as they say, to the moon again,
Speaker 1: micro Strategy would still have what looks like a hole
Speaker 1: on their balance sheet. Yeah. From a financial statement perspective,
Speaker 1: I mean they're number one. They're they're writing down bitcoin
Speaker 1: pretty much every quarter since they've owned so their earnings
Speaker 1: have been horrendous as a result, even though Bitcoin at
Speaker 1: times has been a very profitable bet for them. And
Speaker 1: then in terms of what you're talking about, the the
Speaker 1: actual bitcoin itself on the balance sheet, all it does
Speaker 1: is disappear every time they have to write it down. So, um,
Speaker 1: they've written down more than half of the roughly four
Speaker 1: billion dollars a bitcoin that they've bought since since they
Speaker 1: began this for a and just so because sometimes accounting
Speaker 1: and the real world seemed very far apart. When we
Speaker 1: talk about writing down an asset. It doesn't mean that
Speaker 1: they've gotten rid of it. It just means that they're
Speaker 1: no longer considering it for accounting purposes. Yeah. Yeah, The
Speaker 1: accounting on that is that it's considered impaired, meaning that
Speaker 1: the value should never come back. But obviously, in the
Speaker 1: case of bitcoin, it it can come back in a
Speaker 1: moment's notice, So it doesn't really match the reality. Thankfully,
Speaker 1: micro strategy does provide a lot of information, so investors
Speaker 1: are able to figure out where they're where they truly
Speaker 1: are positioned on a day by day basis. So from
Speaker 1: what I'm hearing from you, they made a bet on
Speaker 1: a bitcoin significantly benefited, you know, going from a billion
Speaker 1: dollar company to a twelve billion dollar company just on
Speaker 1: the strength of a two and fifty million dollar bets
Speaker 1: on bitcoin. And now they're being I suppose punished is
Speaker 1: too strong a word, but you know they're they're perceived.
Speaker 1: If you're just looking at the numbers in a very
Speaker 1: specific way, how big do you think is the gap
Speaker 1: between where they're valued at right now and what you
Speaker 1: would consider or what maybe like accountants would consider it
Speaker 1: to be a fair value for the company. Look at
Speaker 1: the numbers, Like I said, they were about a billion
Speaker 1: dollar company before getting into crypto, and given that's just
Speaker 1: the value of the stock is just north of three billion,
Speaker 1: they bought four billion dollars worth of bitcoin between y're
Speaker 1: in there. Uh that bitcoin is down as of today,
Speaker 1: it's down a billion dollars, right It's worth three billion
Speaker 1: dollars right now. Um, so it's sort of spotsle on.
Speaker 1: In other words, yeah, yeah, I mean, look, you can
Speaker 1: take the other the other flip side of the coin
Speaker 1: is it's already up half a billion dollars since the
Speaker 1: last quarter. Um, So it really depends on what the
Speaker 1: what the measurements are that you want to use up next.
Speaker 1: You'll hear more from Bloomberg senior editor Dave Litka and
Speaker 1: from our accounting specialist Tom Contuliano all about Michael Sailor
Speaker 1: and micro Strategy. Micro Strategy is changing up its leadership.
Speaker 1: Michael Sailor, who co founded the company in nine nine,
Speaker 1: is giving up his CEO title, saying he will increase
Speaker 1: his advocacy efforts for holding bitcoin. Michael, great to have
Speaker 1: you with us, So talk to us about what drove
Speaker 1: this decision to move on from that CEO spot. Is
Speaker 1: it the end of the bitcoin era for micro Strategy? No, No,
Speaker 1: it's the the getting of the bitcoin error. In kind
Speaker 1: of a blockbuster announcements as part of their last earnings,
Speaker 1: they said that he would no longer be the CEO
Speaker 1: of the company. Dave, what went down there? Well, they
Speaker 1: announced that he would now serve as executive chairman, and
Speaker 1: that triggered a lot of speculation. Okay, was he pushed
Speaker 1: because the bait went bad on it? It's still a
Speaker 1: question that's unanswered. But he does the way they the
Speaker 1: common shares of the company are structured, he does still
Speaker 1: control the vast majority of the voting rights, so he's
Speaker 1: still his own boss on it. Um, but you would
Speaker 1: assume there has to be some pressure when you take
Speaker 1: a billion dollar quarterly loss and you look at the
Speaker 1: core business and sales are falling, right, So he's once
Speaker 1: again in a position where he is a person who
Speaker 1: looked like he lost a ton of money in a
Speaker 1: very short amount of time. Sure, I would be surprised
Speaker 1: if there's many folks who have lost more than a
Speaker 1: billion dollars toy. I've been working with Fong on CEO
Speaker 1: succession for about four years now, and it's always been
Speaker 1: part of the plan. We finally got to the point
Speaker 1: where we had Andrew our new cfol on board and
Speaker 1: we could actually make the change in Pong told CEO.
Speaker 1: So I think that the markets responding to the fact
Speaker 1: that now instead of two executives Sailor and Fong Lee,
Speaker 1: we have three executives, and um, it allows me to
Speaker 1: do what I like to do. Which is bitcoin advocacy,
Speaker 1: Bitcoin Acquisition. I'll continue to provide oversight for Bitcoin Acquisition.
Speaker 1: Is the chair of the Investments Committee of the board.
Speaker 1: I'll stay as a chair of the board. So he's
Speaker 1: still the controlling sharehold of the company. He's still the
Speaker 1: executive chair of the board. What do we think is
Speaker 1: kind of a meaningful next step from a business perspective
Speaker 1: for micro Strategy, Tom, Like, do you think they're going
Speaker 1: to go back to focusing on software? Is there a
Speaker 1: universe in which the attempt to you know, I've off
Speaker 1: the bitcoin owning section of the business, Like, what are
Speaker 1: some of the kinds of strategies that you've seen in
Speaker 1: the past with folks attempting to deal I mean, suppose
Speaker 1: there's no really an exact comparable, but you know where
Speaker 1: they're trying to isolate something that is no longer core
Speaker 1: or perceived as core. Yeah, but you could also take
Speaker 1: the opposite view that micro Strategy stock is almost tripled
Speaker 1: since they got into bitcoin. Um, you could sit there
Speaker 1: as a chairman CEO of the new CEO and say
Speaker 1: this is this is wonderful. People a Bloomberg are talking
Speaker 1: about it. They're reading about a company that otherwise maybe
Speaker 1: they hadn't and investors who got in in August of
Speaker 1: two thousand and twenty that made an awful lot of money,
Speaker 1: including including the chairman. So I think he's been pretty
Speaker 1: consistent that they're in it to win it. And if
Speaker 1: you're on the micro Strategy bus at this point, you
Speaker 1: know that you're you're staying with bitcoin. So the question
Speaker 1: is how how do you get more of it? Perhaps UM?
Speaker 1: Does that software business generate enough money that they can
Speaker 1: continue to buy based on the cash that throws off?
Speaker 1: Or is there some other way they've been creative and
Speaker 1: how they've they've made some bitcoin acquisitions to date, is
Speaker 1: there some other way that they haven't examined that that
Speaker 1: they can get a little bit more in the coffers? Well,
Speaker 1: let's go back to the two other companies that you
Speaker 1: mentioned as having disclosed bitcoin on their balance sheets around
Speaker 1: the same time as micro Strategy, Right, so Tesla which
Speaker 1: has been exiting it's bitcoin position, UM and Square now
Speaker 1: known as block, which just from the name is like
Speaker 1: really doubling down on their own crypto strategy. You know
Speaker 1: they're investing in UM technology related to crypto mining, for example,
Speaker 1: But have you seen kind of an uptick across the board, Like,
Speaker 1: are there many more than three companies now that are
Speaker 1: disclosing these kinds of holdings. I have not, And you know, Tesla.
Speaker 1: Anything with Tesla obviously generates a lot of headlines. Um. There. One,
Speaker 1: their initial one point five billion dollar acquisition of a
Speaker 1: bitcoin is a lot of money to the three of us.
Speaker 1: But two, Tesla's business is it's a little bit of
Speaker 1: an afterthought. Um And like you said, they have sort
Speaker 1: of moved out of it. So I think there is
Speaker 1: a question whether public companies are going to follow this
Speaker 1: this this strategy that these three companies have embodied at
Speaker 1: some point in the last couple of years. David, I
Speaker 1: want to go back to something just about like Sailor himself.
Speaker 1: You know, he is still personally fabulously wealthy as a
Speaker 1: as an individual, and it doesn't seem like recent events
Speaker 1: have dented his faith in in bitcoin specifically, or the
Speaker 1: perception that you know, many in the crypto and the
Speaker 1: bitcoin community have that this is a person who really
Speaker 1: knows what he's talking about. Are there other people, you know,
Speaker 1: just in this kind of universe of like Sailor and Novograts,
Speaker 1: Are there other people who you're observing trying to lead
Speaker 1: their companies in kind of crypto friendly directions that we
Speaker 1: know we should be having a follow up conversation with
Speaker 1: Tom about like six to twelve months. Well, the crash
Speaker 1: changed a lot of things, so he had a lot
Speaker 1: of people who were kind of flirting with the idea,
Speaker 1: and as Tom mentioned that, those those two companies and
Speaker 1: maybe a handful of crypto minors that type of thing.
Speaker 1: But now with the collapse of the price, they're struggling
Speaker 1: to just keep their head above water and stay in business.
Speaker 1: So the tone has really changed for everybody except for Sailor,
Speaker 1: who hasn't deviated at all from his line. When Musk
Speaker 1: sold the shares for tesla Um last quarter, he bit responses,
Speaker 1: you left with what I get after I sell this,
Speaker 1: you're left with of bitcoin, and he hasn't deviated at all.
Speaker 1: So essentially, just to go back to Tom's earlier point,
Speaker 1: even though this current quarter and perhaps the quartes have
Speaker 1: come might look a little bit challenging from an accounting perspective,
Speaker 1: as far as Sailor is concerned, the fundamental bet was
Speaker 1: the right one for micro strategy. Yeah, I mean, it
Speaker 1: depends what you're looking at right, they've made roughly two
Speaker 1: dozen purchases of bitcoin and what all but two or
Speaker 1: three of them are underwater. Um, the overall bet itself
Speaker 1: is is underwater by a billion dollars. So, um, it's
Speaker 1: a question of time. Um, you know, maybe crypto goes
Speaker 1: back up, maybe bitcoin goes back up, and suddenly that
Speaker 1: looks like a great long term bet. So we're waiting
Speaker 1: on on when that happens, I guess. And just to
Speaker 1: kind of follow up on that point with the time made,
Speaker 1: the Sailor himself has been quoted and and but believe
Speaker 1: it even an interview with U with us that um,
Speaker 1: he had a tough choice to make. He knew his
Speaker 1: company wasn't growing at the pace it should be, and
Speaker 1: it was either do something different or die on it.
Speaker 1: And he chose something different. Yeah, and that is that's
Speaker 1: what CEO do. Write. Those are those a decisions they
Speaker 1: try to make. We were very unfortunately not able to
Speaker 1: get Sailor himself for this episode. His folks let us
Speaker 1: know that he was traveling at the time that we
Speaker 1: were recording it. But Michael Saylor, if you're listening to
Speaker 1: this and you want to come on and and give
Speaker 1: us your perspective on this story. We would happily have
Speaker 1: you on the Crypto podcast. Well, thank you both for
Speaker 1: being here. I really appreciate you taking the time in
Speaker 1: the podcast. Tom, Dave a pleasure to have you. Thank you, Stacy.
Speaker 1: You can find more of their reporting on the Bloomberg
Speaker 1: Terminal on Bloomberg dot com, or follow Dave Litka on Twitter.
Speaker 1: He's at d l I E D T k A.
Speaker 1: As always, it was another busy week on the Crypto beats.
Speaker 1: Join me tomorrow as I call on two of Bloomberg's
Speaker 1: senior editors for Crypto to break down what happened this week,
Speaker 1: what we're thinking about, and a little bit about what
Speaker 1: we're reading. This is Bloomberg Crypto, a daily podcast from
Speaker 1: Bloomberg and I Heart Radio. For more shows from I
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Speaker 1: or wherever you get your podcasts. Send us your comments,
Speaker 1: questions or suggestions for the show to Crypto at Bloomberg
Speaker 1: dot net or find us on Twitter. We're at Crypto.
Speaker 1: The supervising producer of Bloomberg Crypto is Vicky ver Galina.
Speaker 1: Our senior producer is Janet Babin. Our producers are Mohammed
Speaker 1: Farouk and Sharon Barrero. Associate producer is Thy Butler gesta
Speaker 1: wonder At is our engineer. Original music by Leo Sidrin.
Speaker 1: I'm Stacy Marie Schmal We'll be back tomorrow.