CEO Gets Last Laugh
“Most Consequential Halving [in] History”
MicroStrategy’s founder and former CEO Michael Saylor was a relative unknown until Aug. 11, 2020… when Bitcoin was priced around $11,400.
On that date — with literal and figurative fires burning throughout the pandemic hellscape that was the U.S. — Saylor announced his publicly traded company MicroStrategy (MSTR) had invested $250 million in Bitcoin.
At the time, he called the flagship crypto a “dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.”
According to the website CoinMarketCap: “Saylor’s move was a first — the head of a mainstream public company calling Satoshi Nakamoto’s cryptocurrency a good long-term investment, and putting his corporate treasury where his mouth was.”
A little over a month later, in September 2020, Saylor added another $175 million worth of Bitcoin to MSTR’s balance sheet, bringing the firm’s total to 38,250 Bitcoins.
The following year, MicroStrategy would continue to double-down on Bitcoin…
“As of Feb. 24, 2021, the company holds an aggregate of approximately 90,531 Bitcoins,” said a MicroStrategy press release, “which were acquired at an aggregate purchase price of approximately $2.171 billion and an average purchase price of approximately $23,985 per Bitcoin.”
“[MicroStrategy] remains focused on our two corporate strategies of growing our enterprise analytics software business,” Saylor said in 2021, “and acquiring and holding Bitcoin.”
We’re certain Saylor got roasted for his pioneering position on Bitcoin — especially during the bearish “crypto winter” of 2022 — but nobody trolled him harder than Saylor himself…
Courtesy: X
Which brings us to this morning, as CNBC notes: “[Saylor’s] company has used its balance sheet and tapped the capital markets to acquire more than 214,000 Bitcoins since announcing its strategy to enter the crypto market in mid-2020.
“Those assets, equal to about 1% of the total number of Bitcoins minted to date, are now worth about $13.6 billion, accounting for the bulk of MicroStrategy’s $21.3 billion market cap.” [Emphasis ours]
“In a market where consumers can buy Bitcoin directly on various exchanges or choose a host of new ETFs,” CNBC adds, “Saylor has said the ongoing advantage of MicroStrategy is that it’s a leveraged Bitcoin play without the management fee.” (An intriguing premise, in my opinion; MSTR shares are up about 90% YTD.)
And speaking of the mainstream finally catching onto the biggest story in crypto…
“Much of the rally in Bitcoin and related investments has to do with [the] upcoming halving this week,” CNBC says.
This pre-programmed cut in supply — which happens every four years — has led to higher Bitcoin prices 100% of the time. And the halving is going down sometime today or tomorrow…
It is an event that has been responsible for creating 88,000 millionaires in the last 15 years. That’s more than Microsoft and Google combined!
And unlike most events in the markets like an IPO or a corporate buyout, this event is guaranteed to happen.
At a time when supply of new Bitcoin coming onto the market will be cut in half, demand for Bitcoin is exploding. Plus, the floodgates are open to new sources of money.
“It will be the single most consequential halving in the history of Bitcoin,” says Michael Saylor.
So far, for instance, most demand for the new Bitcoin ETFs has come from retail investors. But the big money will come from endowments, pension funds, mutual funds, hedge funds, sovereign wealth funds and other wealth management businesses.
And while it’s true that Bitcoin went up 7x, 27x and even 92x during past halvings, many smaller “alt coins” went up much higher.
Which is why Paradigm’s crypto evangelist James Altucher suggests Bitcoin isn’t the best way to invest in crypto. He believes the biggest gains will happen in a set of much smaller coins that most people have never heard of, sending some exploding 100x, 200x and even 300x in rare cases.
It’s happened in each of the previous three times, and James expects the same thing to happen during the fourth halving.
[If you missed out on the life-changing gains from past Bitcoin halvings — as most people did — you now have another opportunity. But with the halving event upon us, the window is closing soon. In fact, you’ll want to view James Altucher’s six-coin prediction before MIDNIGHT.]
Markets Today: Gold, Oil and Netflix
The market reaction to Israel’s counterstrike against Iran was… short-lived.
Gold popped over $2,400 and oil jumped by $3 a barrel in global trading last night as soon as it was apparent that some sort of attack was underway.
But once it was evident the counterstrike was of a limited, send-a-message nature… the commodity complex pulled back. Checking our screens this morning, the bid on gold is $2,389 while silver trades for $28.49. Crude fetches $83.16 — nowhere near the $85-plus levels where it’s traded most of April.
As for the major stock averages, it’s a mixed bag — the Dow in the green, the Nasdaq 1% in the red. The S&P 500 is down a third of a percent and on track to end the week below 5,000.
The action in Netflix this morning is another reminder of Paradigm trading pro Greg Guenthner’s rule of thumb: It’s not the news that matters, it’s how the market reacts.
When NFLX reported its quarterly numbers yesterday, the initial spin in the financial media was Oh look, Netflix’s crackdown on password sharing is working like a charm — the subscriber count is up at its fastest clip since the COVID lockdowns!
Then everyone took a closer look at NFLX’s earnings release — and saw the fine print that starting next year, the company will stop reporting its subscriber count.
Heh, for the last decade or so, Wall Street attached far more importance to Netflix’s subscriber count than it did to boring, old-fashioned numbers like sales and profits. That’s how Netflix became one of Wall Street’s darlings in the latter half of the 2010s — remember the frenzy over the “FANG” stocks?
Welp, that’s all over now; NFLX shares are down nearly 7% on the day. About a third of its year-to-date gains, vaporized in a matter of hours. Guess sales and profits still matter after all…
The Fed’s Rocket Surgeons
“Federal Reserve posts largest operating loss on record,” says a headline at Moneywise.
“You read that right,” Jim Rickards comments. “The Federal Reserve lost over $114 billion in 2023.”
How can the Fed lose money? Don’t they print the stuff?
“From your perspective, the money the Fed prints is an asset; you can put it in the bank or invest in anything you want,” Jim says. “But from the Fed’s perspective, money is a liability, actually a form of debt. It appears on the liabilities side of the Fed’s balance sheet.
“What about assets? When the Fed prints money, they do so by buying Treasury notes or mortgages from big banks. The money comes out of thin air, but the Treasuries and mortgages are delivered to the Fed and go on the balance sheet as assets.
“That’s where the trouble begins…
“A few years ago, the Fed loaded up on notes with interest rates around 2.0%,” Jim observes. “Many of those notes have five- or 10-year maturities and they’re still on the balance sheet.
“Meanwhile, the Fed pays banks interest on excess reserves deposited by the banks with the Fed. That’s an overnight rate closer to 5.0% these days.
“You don’t need a Ph.D. in economics to see that if you earn 2.0% on your assets and pay 5.0% on your liabilities, you lose money,” he says. “And that’s what’s happening at the Fed.
“Is the Fed going broke? Actually, yes,” Jim confirms. “This does not happen in isolation…
“When the Fed makes money, they hand over the profits to the Treasury in net of operating costs. But when the Fed loses money, the Treasury has to subsidize the Fed which comes out of taxpayer funds.
“Not only is the Fed losing money with negative cash flow,” notes Jim, “but its capital is also evaporating. If you marked the Fed’s balance sheet to market (something the Fed does not do), it would show negative net worth from time to time.”
Jim concludes: “I once had a private dinner with a Fed governor. She told me that central banks don’t need capital… I guess we’re about to find out if that’s true or not.”
A Bay Area Small Business: “Forget It”
A Bay Area burger joint — that’s been operating for almost 40 years — closed for good last week after legal and landlord hassles were bad for business.
“We’re going to miss the community and our great customers,” says George Koliavas who co-owned Great American Hamburger & Pie Co. with his wife, Helen.
Helen’s family opened the restaurant — known for its garlic fries and 30-plus milkshake flavors — back in 1986. George and Helen took over in 2010. They barely scraped through the pandemic, facing the challenges of “rising costs [and] finding staff,” SFGate notes.
Courtesy: X
But when a wheelchair-bound customer visited the establishment twice last year and couldn’t navigate the threshold, he filed a lawsuit in January 2024, citing the Americans With Disabilities Act (ADA).
“According to George, his landlord discussed adding a wheelchair ramp by the entrance but ultimately didn’t due to high costs,” says SFGate. “The lawsuit has created additional stress for the Koliavas family.”
“It’s frustrating and you get to a point where you say, ‘You know what, forget it,’” says Mr. Koliavas. “It seems like the chain reaction is that the landlord doesn’t want to do anything, and it comes down on the small businesses.”
Very sad. (And I’m starving.)
Mailbag: Gold Heist Update
“The real story regarding the Toronto airport gold heist is the court case of Brink's versus Air Canada,” a reader writes after we recounted yesterday the 2023 theft of 6,500 gold bars.
“Obviously, one of the parties will have to pay the Swiss refinery and bank for the loss,” he says.
“No matter which party is liable for ‘payment,’ will the reimbursement be the replacement value of the gold (currently US$2,394/ounce) or a cash payment based on the official U.S. book value of gold at U.S. $42.22/ounce?
“I believe that Air Canada is seeking a settlement based on the official U.S. book price and not the replacement price.
“This case may set a precedent for all such future cases. If the courts accept the official U.S. book gold valuation, then all gold shipments will cease regardless of insurance coverage.”
Emily: Intriguing… As near as we can tell, Air Canada’s standing behind the Montreal Convention which would cap the airline’s liability at just US$175,000.
Air Canada alleges that “Brink’s shipped the gold and cash from Zurich to Toronto without declaring its value, failing to add any insurance and declining to pay extra for added security,” The Guardian notes.
Brink’s, of course, is seeking the replacement value of the gold shipment. But if Air Canada’s allegations are true, Brink’s might be quoting another airline’s slogan…
Wanna get away?
Take care, and enjoy your weekend!
Emily Clancy
Associate editor, Paradigm Pressroom's 5 Bullets
