This Is the MOST Over-Leveraged Bet in Crypto History

As Bitcoin's price falls with the stock market, there are growing concerns that lower prices might pressure Bitcoin's biggest corporate holder and its most leveraged one, potentially leading to liquidations. The recent actions of MicroStrategy, including rebranding a strategy, are starting to come off as a little bit desperate. That charge was reignited by the issue of high coupon preferred stock just this past Friday. The preferred shares sold at the end of last week feature a 10% coupon, which is already two percentage points higher than the 8% coupon preferred shares that strategy sold just a month and a half ago. The fear is there might be a liquidity crunch at the company, either now or up in the future. And since the only real asset it has is Bitcoin, financing pressures combined with a sagging Bitcoin price can potentially lead to some untimely selling. This turn towards selling preferred shares comes after a really aggressive use of leverage, largely convertible bonds, over the past year or so. Basically betting huge that Bitcoin's price would continue to soar. And that seemed a really good bet up until the stock market ran into the growth scare and now recession fears. So Bitcoin itself basically trades with the rest of the NASDAQ where strategy stock already does. In a more than temporary drop in price, Bitcoin as well as stocks threatens to create the same kind of backlash that we've seen throughout bubbly history. And that raises even larger questions as to what the strategy is here. Not simply that of Michael Saylor, the company's chairman, and who has become the most vocal advocate for Bitcoin, but for Bitcoin itself. I mean, Wall Street now loves it, but the commercial world could hardly care less about it. And we were reminded of that fact recently by the step back taken in El Salvador at the end of this past January. Is Bitcoin really solely about price now? And if it is simply just a digital price asset, what are the risks to it coming from not just the stock market, what the stock market is getting into as far as the recession scare, but also potentially what's happening with formerly micro strategy, Bitcoin strategy, the company that Michael Saylor runs and talks endlessly about. In fact, if you're not familiar with Bitcoin, what used to be called micro strategy, it's now called strategy. It is, according to its own statements, the world's first and largest Bitcoin treasury company. They're basically trying to become a Bitcoin bank, which is a laudable idea. We are a publicly traded company that has adopted Bitcoin as our primary treasury reserve asset. By using proceeds from equity and debt financing, as well as cash flows from our operations, which really aren't much these days, we strategically accumulate Bitcoin and advocate for its role as digital capital. Our treasury strategy is designed to provide investors varying degrees of economic exposure to Bitcoin by offering a range of securities, including equity and fixed income instruments. As I said, the idea of becoming a Bitcoin bank is a very neat idea. At least it would be in the right hands of someone who actually understands banking and money. Banking and money are not what Bitcoin advocates continue to talk about. And we'll get into that a little bit later here. But as far as micro strategy, now strategy is concerned, they've been offering, they've been somewhat forced into offering preferred stock because after issuing so much convertible stock last year, convertible debt last year, the dilution to existing shareholders got to be too much. And so this past Friday, the company announced the pricing of its offering of March 20th, 2025, eight and a half million shares of 10% Series A Perpetual Stripe preferred stock at a public offering of $85 per share. The issuance and sale of Perpetual Stripe preferred stock are scheduled to settle on March 25th, subject to customary closing conditions. The company estimates that the net proceeds to it from the offering will be approximately 711.2 million after deducting fees and commissions and everything else. And the company intends to use the net proceeds for general corporate purposes. That's a big one there that they always throw in, including the acquisition of Bitcoin and for working capital and for what it's worth. Saylor and I believe the company said that they do plan on using the majority of the proceeds to buy more Bitcoin. And it should also be pointed out that they were only planning to offer about half a billion dollars or 500 million. And so they were oversubscribed to 700 million to begin with. So there is demand for this type of preferred security from the company, but having to pay 10% is already somewhat of a red flag. It's not just 10%. The offering also noted that while they have to pay cash every quarter, if they miss a dividend payment, it will therefore owe extra quote compounded dividends that increase by 1% every quarter until they're paid up to a maximum of 18%. So again, the red flags here, why are they offering these high return or high interest rate payment shares if demand really is as strong as it appears to be? Most of the leverage the company had been employing up until now had been convertible bonds with interest payments between really zero and 2%, with a lot of it just at 0%. And according to their filings, their interest payments over the last 12 months were just $62 million. Not a whole lot of interest expense for a company whose Bitcoin holdings are now valued well north of $40 billion. So if they have to sell a little bit of coin to make these interest payments of $62 million, that's not necessarily a big deal. But by switching to preferred stock rather than the convertible bonds as before, now they've really accelerated their interest rate schedule moving forward. They had sold preferred stock first back in February. Early February, they closed on 7.3 million shares that raised $534 million in proceeds, net proceeds, but they were paying 8%. So already you're talking about an increase in regular dividends, not interest, but regular dividends of $40 million on top of the 60 million of interest payments they were paying before. But now we went from 8% early February to 10%, maybe as high as 18% here at the end of March. So altogether, Bitcoin MicroStrategy or Bitcoin Strategy added another 70 million or so in dividend payments on top of the 40 million in dividend payments from the February stock offering on top of the 60 million in interest payments that they had from the convertible bonds. Suddenly you're talking about a big increase in regular cash flows. That starts to, it becomes a real danger if Bitcoin's price falls even further because that means they have to sell even more coins just to make up the difference. And now they have a bigger regular quarterly nut that they have to pay every time to begin with. So the lower Bitcoin's price might go, the more this leverage starts to bite. They have to sell coins to pay the interest, especially since the underlying business of MicroStrategy or what used to be MicroStrategy really isn't all that profitable. And there's questions about whether or not it actually is profitable anymore. And let's not forget, they have debt repayments too, principal debt repayments. There's a lot of them, several billion dollars over the next couple of years and about $8 billion that need to be repaid over the next seven years. So the lower Bitcoin's price goes, or the more it looks like Bitcoin's price might be weak, the less there's going to be appetite to roll over that debt or resubscribe, more of it's going to be converted, maybe it's not converted, the more trouble it can cause the company because that amount of debt that needs to be repaid at lower Bitcoin prices, suddenly they have to sell more and more assets. And some of these most recent moves, the selling of the preferred stock, the raising of the dividend rate up to 10%, even the rebranding from MicroStrategy to Strategy, it seems like it's all intended to project strength, immediately claiming the proceeds are going to use more Bitcoin, which seems like it's intended to prop up the price of Bitcoin, not necessarily the company price, but the price of Bitcoin, and sort of pump and dump style. And then there's this whole push about, from Michael Saylor and the rest of the Bitcoin community, pushing the government to buy Bitcoin as a reserve asset. It's been amazing to watch Bitcoiners transform from basically raging free market, fiercely libertarian types who hated the idea of government interference and who regularly cursed the Wall Street squid, as they used to call them, now all of a sudden government is great and Wall Street is every Bitcoiner's best friend. And there is an argument to be made for that. I'm not dismissing that. There's an argument that there needs to be institutional adoption in order for Bitcoin to fulfill its role as money, but as institutional adoption simply means making Bitcoin more of a financial portfolio asset and less of an actual useful medium of exchange. So becoming an institutional adoption or going toward institutional adoption serves only one part of the overall idea. And it's not the same part that was originally set out for it, which was supposed to be, as Satoshi's white paper said, a peer-to-peer payment system, not a portfolio asset that Wall Street embraces to throw into mom and pop's retirement funds. But the idea that governments need to get involved in Bitcoin to buy regular, to build up reserves of Bitcoins in the same way that MicroStrategy or now Strategy has. On March 7th, Michael Saylor went to the White House in which he laid out his document called A Digital Asset Strategy to Dominate the 21st Century Global Economy, where he proposed that the U.S. government should acquire anywhere between 5% and 25% of the Bitcoin network, and accomplishing that with what he called consistent programmatic daily purchases between this year and 2035, when 99% of all Bitcoin will have been issued. Think about what's being proposed here. What he's proposing, what Saylor's proposing is that the U.S. government borrow Eurodollars from the Treasury market, paying an interest for useful currency, taking that useful currency that isn't being used to buy Bitcoin, and therefore redistributing it to Bitcoin to prop up the price. So government is gonna pay interest to borrow money people actually use to buy a piece of the digital blockchain that they don't use. So they're gonna take real usable money to prop up the price of something that isn't, all on the idea that the price of that something means it will someday be some kind of useful money down the road. Does this make any sense? The value of any currency really comes from its usefulness. And Bitcoiners have been convinced, and have convinced themselves, that that's all about store value. When the history of the last more than century has shown the commercial world continues to move in the direction of useful medium of exchange, and away from rigid, inflexible stores of value. So the idea that Bitcoin's price equals progress is a faulty one to begin with. But for someone who's overly leveraged on Bitcoin and its price, you have to do everything in your power to make sure that price never goes in reverse. Otherwise, we've seen this story before. So he's all leveraged micro-strategy, strategy, I keep calling it micro-strategy, but strategy is entirely leveraged on the Bitcoin story. And the Bitcoin story proceeds from a whole bunch of mistaken myths. According to reports, Saylor had previously pitched this Bitcoin reserve strategy to places like Microsoft, even going so far as to have a presentation with the board of directors there, where he said that reportedly, by owning Bitcoin as a Microsoft company's treasury asset, he could create $5 trillion in shareholder value, keep throwing on these huge numbers, which is also a red flag. And reportedly, Microsoft said, thank you for your presentation, but we're not gonna act on it. Nobody else has acted on it either. So this idea that Saylor's out there knocking on doors to get institutions and businesses and large firms to buy Bitcoin and hold it as a reserve asset, it's not finding a whole lot of takers there either. As I said, Bitcoin was supposed to be a peer-to-peer payment system. That was its original purpose and its original idea. But somewhere along the way, it got hijacked into something else entirely. Now everything is about the price of Bitcoin and this idea that institutional adoption is the first step toward commercial adoption. When we continue to see the commercial system has no interest in these types of assets and instead wants a flexible, fluid digital medium. Ledger money is not something new. It's not something that Bitcoin invented. In fact, the Eurodollar, the standard that we've been on for a long time, three quarters of a century almost, is in fact a digital virtual currency, a ledger money system already. So the groundwork was already laid. It was already there waiting. All the cryptocurrencies and digital projects had to do was realize what money really was, but instead everyone thought that the Fed printed money was gonna unleash hyperinflation, the dollar was gonna be destroyed, and so they focused on store of value when realizing what has happened over the last couple centuries. As I said, the world, the free market world, the commercial world, chose to move in the direction of flexible dynamics, not stores of value, but medium of exchange. Ledger money is all about flexibility, elasticity. It's not about protecting yourself against hyperinflation. It's about being useful, and useful not in a financial context which requires Wall Street and governments to purchase it to prop up the price. That's the wrong direction. And just to be clear, I mean, I have no problem with the fact that Bitcoin has become a financial asset like a NASDAQ. It's not gonna have no problem with people who are getting rich off of that. There is a place for store of value. It's just not as a monetary asset. So people who are selling the Bitcoin story as the ultimate form of money, that's not what it is, and that's not what it's becoming. And this focus on price is moving it in the wrong direction from the perspective of a monetary system. It's a financial asset. Like I said, there's uses for financial assets. In fact, the Eurodollar system has left open the entire financial system to be those stores of value, to be a place that you put your savings. You don't hold your wealth in currency, you never really have. You put your wealth these days, really since the 1980s, in the stock market. So if Bitcoin becomes another thing like the stock market as a store of value, a method of savings, perfectly fine. But the price story seems to depend more and more on the fact that price has to go up, institutions need to adopt Bitcoin, and that's the way in which Bitcoin becomes useful money. The Eurodollar, and even before that, bank forms of money proved beyond any shadow of a doubt that's not how money works, nor is it what the free market wants. The free market, as I keep saying, has been moving for centuries in the direction of flexible, dynamic medium of exchange, to which Eurodollar and monetary ledgers, virtual currency formats, are ideally suited to that evolutionary process. So that's where digital currencies need to work, not in the direction of being a financial asset, but becoming a better form of medium of exchange, a more dynamic and elastic form of medium of exchange that is dependable. Look no further than El Salvador. Everybody was talking about El Salvador four years ago when they adopted Bitcoin as a legal tender back in 2021. Hardly anyone has mentioned El Salvador since then, and certainly not earlier this year, when El Salvador took a big step back away from Bitcoin. On January 29th, the Assembly, controlled by President Nayib Bukele's New Ideas Party, passed legislation with a 55-2 vote, six articles of the previous Bitcoin law were modified, and three others were repealed. Under the new rules, Bitcoin is no longer considered currency, though it remains legal tender. Another change makes using Bitcoin entirely voluntary. Additionally, Bitcoin can no longer be used to pay taxes or settle government debts, and the government is also stepping back from its involvement in the Chivo wallet, which was the state-backed digital wallet, which nobody really accepted. Now, the government said they're still committed to Bitcoin, they are still buying Bitcoin as reserves, but the truth is it never actually caught on anywhere in El Salvador to any substantial degree to begin with, and they had four years to do this. Instead, Bitcoin, which is supposed to transform El Salvador into this bustling paradise in Central America, may have actually cost the country more funds than any benefits that it derived. To begin with, a recent poll said that 92% of Salvadorans don't even use it or hadn't even used it in the last year, 92% after four years. Furthermore, Moody's estimated that the move toward the Bitcoin law and the policy adoptions had actually cost a net 375 million to the country, which is a sum that far exceeds the profits on Bitcoin holdings, which could still evaporate if the price continues to go down. And instead, a desperate country like El Salvador that has been teetering on the edge of bankruptcy was looking to Bitcoin to be a Hail Mary to live up to the hype, and the fact is, as I keep saying throughout this video, the commercial system could not care less. And so the value, the real value, not the price, the real value of any currency is whether or not it's actually used and how much it's used, not the price on some financial exchange. But how much of that financial price is tied to this idea, the story behind Bitcoin, and how much of something like Bitcoin strategy is tied to the story? They're leveraging the story, not necessarily the price. And as it becomes clear, the story is leading in the wrong direction, what does that leave for strategy? Strategy that is already ultra-leveraged to begin with and getting more leveraged by the day, it seemed, where does it go from here? We've seen this time and time before, people go all in on a story only to find there's not much in that story. There was never government coercion. The free market has been moving toward mediums of exchange that are flexible and dynamic. That's what the Eurodollar system was. Only the Eurodollar system, which was the second evolutionary step, and by the way, this is something that we've covered at Eurodollar University in our member section, I did an entire presentation series on the evolution of money and whether or not Bitcoin took a wrong turn along the way because it was set up to be the third stage in that evolutionary process. The first step was the banking sector using ledger money as a way to make it more mobile and useful, therefore efficient. Growing needs of the commercial system, as it became more complicated and specialized, money needed to become mobile and flexible with the commercial system. The next step was to take those interlocking ledgers that banks were keeping and transacting with and take those ledgers to an international setting, which is what the Eurodollar was. Again, no government coercion, no government involvement at all. The Eurodollar was purely free market. It was outside, it was offshore, it was outside the regulatory authority of everybody. That's what offshore really means. And so the commercial needs of the entire global system dictated the form that the Eurodollar took. It could have taken a rigid hard money format or gold standard if that's what the free market system wanted. But the free market system wanted a flexible dynamic medium. That was what the Eurodollar had been. And so the third stage of the evolution is to take those ledgers out of banks entirely and operate on a single, flexible, decentralized ledger. It was all there waiting for cryptocurrencies and Bitcoin even, but they chose to focus on the Fed and money printing and the destruction of the dollar rather than becoming a useful medium, which is exactly what the commercial world wants, which is why the commercial world continues to not care anything about Bitcoin and its price. It's not about price, it's about usefulness. With all that in mind, Bitcoin isn't going anywhere. I'm not saying Bitcoin's gonna disappear from the landscape. What I'm saying is it's going off in a different direction. That direction is perfectly fine. For our purposes here, I'm looking for a monetary system that is capable of replacing the Eurodollar because it definitely needs to be replaced. And Bitcoin is increasingly not that thing. The world wants a dynamic medium of exchange, a digital ledger currency, and Bitcoin is trying to become the anti-federal reserve, which we don't need an anti-federal reserve. We don't need protection for the dollar being destroyed by hyperinflation. None of that is true. And so if you're highly leveraged the Bitcoin story, and the story's based on all of these flawed myths, what happens when the world catches on like El Salvador that it's not something the commercial system really wants to adopt? What happens is a whole lot of at least short-run trouble. But like I said, I'm not a Bitcoin hater, nor do I believe Bitcoin is going anywhere. I think it's perfectly fine for what it's becoming, which is another form of store of value since the ledger money system, medium of exchange that are dynamic and flexible, they don't really care about stores of value. That's what the financial system has become in the Eurodollar era. So what the stock market ended up being after the 1980s for the Eurodollar system was its savings. That's the store of value. So there's a role for Bitcoin in all of this. It's just not the one that everyone has been selling. And because it's not, Bitcoin itself is at risk of being sold. And this gets really complicated for Bitcoin if the recession scare continues to hamper financial assets like Bitcoin, as I talked about in the video link below. As always, thank you very much for joining me. Huge thank you Eurodollar University members and subscribers. And until next time, take care.