Dear readers,

It is common for a company founder to evangelise a product’s virtues. It is unusual for the founder to champion a product their company does not make.

However, Michael Saylor, chairman and chief executive of MicroStrategy, this summer said the Virginia software company would invest in bitcoin, which is produced by “miners” that perform multiple calculations. The bombshell was delivered perfunctorily. Immediately afterwards, Mr Saylor talked about how much MicroStrategy’s quarterly product licensing revenue had jumped.

Since then, Mr Saylor’s commitment to cryptocurrency has grown. MicroStrategy recently said it had spent $425m buying bitcoin at an average price of $11,111 per coin. Given that bitcoin is now trading at almost $20,000, it has been a canny trade.

Just this week, MicroStrategy went further. It announced a $400m convertible bond whose proceeds will be used to buy the highest profile cryptos.

The principal-agent conundrum has always been at the centre of corporate governance. But a boss obsessed with a controversial, disruptive new financial technology ranks among the most striking C-suite dramas corporate America has seen in a long time.

Line chart of $ showing Bitcoin price

Mr Saylor, a graduate of MIT, founded MicroStrategy in the early 1990s as a pioneer in data mining, or what it calls “business intelligence”. The company benefited from the dotcom mania, reaching a market capitalisation in 2000 of $24bn. That made Mr Saylor a billionaire several times over on paper.

An accounting scandal, an SEC penalty and the internet bust brought the company back down to earth. Still, it kept plugging along in its niche, starting 2020 with a market capitalisation of $1.5bn.

MicroStrategy’s days as an unassuming software company are over. At a November investor meeting, Mr Saylor, who is now chairman of the company and owns about a fifth of its shares, explained further his “Treasury Reserve Asset” strategy around bitcoin. He said:

Among crypto zealots, it is all standard stuff. The question for MicroStrategy is this: is it appropriate to pursue this strategy when it could simply pay the money back to shareholders?

Citigroup analysts have already turned sour. Citi this week prepared a likely unprecedented sum-of-the-parts analysis that included the core software business as well as value of bitcoin holdings at various prices.

Shares of MicroStrategy have more than doubled this year though that trails the rise in bitcoin. Citi went on to downgrade the stock to “sell”, and said: “The issuance of new debt to fund bitcoin purchases is aggressive and may be a deal-breaker for software investors, who may fear they now own a more risky asset management business.”

However, for the millions of speculators in bitcoin, perhaps MicroStrategy shares are now a natural, if unexpected, way to hedge their bets, getting a dull software company as a part of their crypto package.

Enjoy the rest of your week,

Sujeet IndapLex writer