New Concerns for the Cryptocurrency Market Arising from Michael Saylor’s Actions

The $2.27 trillion cryptocurrency market seems to be encountering another significant challenge, and it’s closely tied to Michael Saylor.

Saylor leads a company called Strategy, which evolved from a software firm into a prominent “repository” for Bitcoin. Under his direction, the company has adopted a controversial approach: selling its own stock to acquire massive amounts of Bitcoin. Currently, Strategy holds about 4% of the total Bitcoin in circulation.

That’s around 800,000 bitcoins, which is quite substantial. Bitcoin reached a peak price near $120,000 last year, yielding over 60% returns for investors over the past five years. However, recent trends indicate that the value of Strategy’s stocks has begun to decline alongside Bitcoin’s price.

The pressing question now is whether Saylor plans to turn this current downturn into a catastrophic event for all cryptocurrencies.

Skeptics abound, including renowned short seller Jim Chanos. He has taken short positions against Strategy shares, referencing an arbitrage method he discussed on his podcast, “Risk and Return.”

My podcast partner, Bob Sloan, who has extensive experience in capital markets and runs S3 Partners—a well-respected market data firm—has consistently warned about the risks associated with Saylor’s influence on Bitcoin and the broader crypto landscape.

Sloan argues that relying on a single investor for buying and selling can destabilize the market. Given Bitcoin’s inherent volatility, an eventual sell-off is almost unavoidable.

In Saylor’s words, he emphasized the need for funds to sustain his Bitcoin acquisitions, hinting that a lack of liquidity could compel him to sell.

A recent reflection I had was reminiscent of a piece by my former Wall Street Journal colleague, Jonathan Weil, who delved into Saylor’s business framework. Weil raised concerns about the internal metrics Saylor used to assess his company’s value, suggesting they may inflate the stock’s worth, turning it into a problematic currency for Bitcoin purchases. This exaggerated valuation increases the possibility of Saylor needing to sell Bitcoin instead of acquiring more.

A representative for Saylor refrained from comment when approached, yet both Weil and Sloan have persuasively pointed out flaws in the overall strategy well before the WSJ article was published. This scrutiny may suggest that the crypto winter could extend well into next spring, especially if Saylor, as a key marginal buyer, shifts to a selling position.

His reluctance was evident until Strategy filed a report with the SEC revealing that he had recently offloaded 3,588 bitcoins valued at $200 million. While this only represents a small portion of his total holdings, Bitcoin purists argue that the market has grown beyond Saylor’s influence, encompassing some of the largest players on Wall Street and many committed long-term investors.

Could this be the start of a deeper issue? Or maybe Saylor’s recent sale signifies the onset of a longer crypto winter that might linger until next summer?