Evan Harp speaks with Dan Weiskopf, Portfolio Manager at Toroso Investments and CO-PM of the Amplify Transformational Data Sharing ETF (BLOK ) to discuss Michael Saylor stepping down as CEO of MicroStrategy and what it means for the company and the broader crypto space.
Evan Harp: At a high level, what does Michael Saylor’s exit mean for MicroStrategy and what can expect under Phong Le’s stewardship?
Dan Weiskopf: Well, take a step back. Saylor didn’t exit a micro strategy, right? He’s just changing title. It’s not like he sold his 2 million shares,
He’s been the CEO – And I’m not trying to get too nitty gritty, but he’s still the largest shareholder by far with control and class shares. I would argue that he’s taking the step back to free up time to focus on the Company’s Bitcoin assets more than anything else.
I sat down with him back this January where he again was transparent with me about how he addressed the challenges and frustrations as a fiduciary with the Company’s build up of cash dating back to 2019. Put simply, the software business is wonderful because it generates so much cash, but that benefit only helps if you’re getting credit for that cash and he wasn’t getting any credit for it. Which forces an entrepreneurial CEO to think things through their options. What do I do with the cash? What do I do with my position in the marketplace? Should I make a big acquisition or make tuck-in acquisitions?
I think he came to the conclusion as an operator that he didn’t want to make a large acquisition within the context of the software business. The reason why that is, is because he was up against companies like Oracle, Microsofts and SAP – and he couldn’t outbid them. Therefore whatever he would buy might only be marginal or incremental at best. I don’t think that, frankly, people give him the full credit for really managing such risk and actually being conservative. Instead what he’s done, is he’s found the right leadership to, in his mind, manage the business better than he has been doing from an operating standpoint. Candidly, if you look at MicroStrategy’s revenue growth it just hasn’t been growing in a meaningful way for years.
Evan Harp: The day he stepped down as CEO it went up something like 15%. To what extent though, do you think that bump was buoyed by the recent Bitcoin surge? What do you make of that?
Dan Weiskopf: Yeah. My last point on it is the CEO/President and CFO are both relatively new. So he’s brought the team in that he feels confident about. I think that it was definitely crypto/Bitcoin driven, why the stock went up. The stock also has a mammoth short position. The problem with these shorts is that when bitcoin is going down, it looks like it’s going to go down forever and the shorts feel super happy and super confident. People were talking about Bitcoin going to $13,000, then it stabilized at $20,000 or maybe it hit bottom at $17,000. But then it started moving up again. Now the shorts are afraid that it might be going higher. Let’s take a step back. It may not even be in their purview and making the decision to cover. It may be somebody else’s. It’s, you know, the short interest in MicroStrategy is, like, 36% of the float. That’s huge, right?
Evan Harp: Yeah, that’s pretty huge. To pivot a bit, I’d love to hear your take on the $917 million impairment charge and how that may have factored in Saylor’s decision to step down as CEO – or if it even factored in at all.
Dan Weiskopf: I don’t think it factored in at all. It is an accounting adjustment based upon current FASB rules that mark-to market at the lowest point Bitcoin traded so investors should not be surprise by the write down. Moreover, I believe the board was completely aligned with him and the long term opportunity in owning Bitcoin despite its short term volatility. The accounting is being reviewed by the FASB. Hopefully in the future they will allow for Bitcoin to be mark-to market rather than mark-to lowest price.
Let’s just take a step back and remember that he owns 2 million shares. He is not walk away. He has been CEO for 32 years. So, stepping back, you also have to appreciate at the end of the day, at its peak, I think MicroStrategy may have been worth $700 million in market cap value, maybe a billion. The Bitcoin value just going 130,000 times 24,000 is $3 billion. You know, you tell me where one should spend your energy, if you’re the largest shareholder of MicroStrategy?
Evan Harp: That makes a lot of sense. MicroStrategy is very bullish on Bitcoin. What does that mean at this particular moment? Bitcoin just had this big drawdown, you’ve got the recent surge, and you have companies like Tesla that have been offloading a lot of their Bitcoin. All of this is creating these conflicting narratives.
Dan Weiskopf: We’re looking at entrepreneurial CEOs in the technology world as reviewing Bitcoin as an option when they have excess cash. We think that’s a possibility. Clearly, Saylor was the first to do it. But, let’s be honest, it requires a great deal of conviction.
I think everybody has to be an admirer of Elon Musk for what he’s accomplished. But… He isn’t the most consistent CEO out there. Him waffling on the Bitcoin doesn’t really surprise me. Then the question becomes, who else might step up and take the kind of position that Saylor has taken?
So I guess my answer to you is Elon Musk’s sale proves that you can turn around and sell Bitcoin in massive scale if you’re panicking, which he did. I mean, he did. He sold during the crisis. Maybe he still has two or three hundred million. I don’t know. Because we’ll find out later when they report the next quarter.
Evan Harp: When people are putting up think pieces or talking about this story, what is something that, in your view, not enough people are considering?
Dan Weiskopf: I think what is not necessarily appreciated is that he has been the CEO for 32 years. I think he was the longest running active CEO/entrepreneur as a controlling shareholder. That doesn’t come around very often. I think what people underestimating is I think he’s worked very, very closely with his board and the other members of the management team to do it the right way. To do this the wrong way is an invitation for lawsuits.
I think he really telegraphed what his intentions were when he started to buy bitcoin. He owned it himself before MicroStrategy bought it. He had to get comfortable himself with the volatility and the trend and analysis that he had done. Then he went to the board and laid out his plan.
I also don’t think that people fully appreciate the structure that they took to manage the risk associated with owning the Bitcoin. They’ve done it in stages. When they borrowed, they borrowed very carefully. All the rumors about a margin call, I think, were the shorts providing misinformation. Well, clearly it was because it didn’t happen. He graduated from MIT with the highest honors, so he obviously is a pretty smart guy. I think engineering background – maybe he knows how to do the math?
Evan Harp: Does his role change make you more or less bullish on MicroStrategy? Or, or maybe about the same level you were at before?
Dan Weiskopf: It doesn’t change our outlook on MicroStrategy. At all. He probably has more free time to focus his energy to have a positive influence on the price of Bitcoin, and arguably walk through how to do it the right way with other CEOs and other folks who are interested in in bitcoin.
I think it’s way too under appreciated, frankly, that, here you have a billionaire who’s taking this massive risk and buying Bitcoin. Why is he doing that? Is it just to make more money? Or is to make a statement that things need to change? I think he views Bitcoin as a technology as much as anything else. Having said that, he would tell me that I’m wrong, it’s a store of value.
Evan Harp: Just thinking in terms of something you said, every community has personalities and leaders and spokespeople, but do you agree that the crypto space, compared to other types of spaces or corners of the market, relies more on its personalities and big names? What do you see as Saylor’s role in the Bitcoin community going forward compared to what it might have been when he was a CEO?
Dan Weiskopf: So a couple of things. Yeah, he must spend a crazy amount of time promoting the interests of the Bitcoin community. I asked him, at one point, whether it was really altruistic in that – I think here in the US, it’s under appreciated the challenge of transferring money, right? In the emerging markets, it is difficult to transfer money. Bitcoin is just definitely changing people’s lives. It just isn’t as clear in the U.S. where the banking system is developed.
I think the other thing that is under appreciated is as a personality he has always been very generous about education. That’s why he created and funded the Saylor Academy back in 2008.
Evan Harp: What do you see happening in the second half of the year for the crypto space in general?
Dan Weiskopf: My hope is that Bitcoin has bottomed, and if bitcoin has bottomed the trend will move positively for the price. Which would mean that it would challenge $25,000 which means that it’s going to challenge $30,000 and then people are again going to get super excited, because everybody likes to work with large numbers and the excitement will come back.
I think my message is not just about Bitcoin, my message is about the blockchain. I see venture capitalists continuing to fund money into this space. I did ask Michael Saylor directly at one point, why won’t you ever diversify away from Bitcoin? He said, with his piercing eyes – he’s got piercing eyes, it can be a little bit intimidating. He said, “no, my mandate is twofold. One to see the software business grow. And then secondly, to work on developing our Bitcoin assets as a business. I’m not going to deviate from my mandate. That’s not what I’ve been hired to do by those investing in MicroStrategy.” You can see the answer, by the way on my interview series, when I talked to him.
He’s very, very specific in his view, and his thought is, “If I know the best idea, why am I going to dilute that best idea with a secondary idea?” I’m not sure I agree with it. I like diversification. But that’s not his message. That’s not what he’s going to do. And, if you don’t like that, don’t own MicroStrategy. That’s your problem. This is what this person is going to do and he’s been very clear on that.
Evan Harp: A lot of people seem to ask the question, whether or not MicroStrategy is an alternative to a spot bitcoin ETF? What would happen if a spot ETF came about?
Dan Weiskopf: We probably wouldn’t change our position if an ETF were to be launched. To be clear, I don’t see a spot ETF happening in 2022, maybe later on in 2023 or 2024. It’s possible. But he’s filling a void, right? Because a spot ETF doesn’t exist. I also think that institutions feel comfortable with him because he’s done the right thing so they’ve invested in the in the firm.
My last point that I would make is that I like what the firm did in leveraging its balance sheet. I’m sorry, but I was pleased back in 2021 when he through MicroStrategy borrowed at cheap rates to buy Bitcoin. I don’t think that people appreciate his sensitivity around the firm’s capital structure, but being able to borrow $1.7 billion at below 1% was a once in a life time opportunity.
Don’t get me wrong. MicroStrategy, as a company, serves a purpose for us. I’m not married to the stock but it gives me, with confidence, direct exposure to Bitcoin, which I want. And as an institution, I feel he’s protected it. By the way, on a side note I would also say that I asked him whether or not he would loan it out to get some yield?. His response was very direct, he basically bluntly said “what are you crazy?” “I’m going to loan it out. Clip 4 for 5% in income and take a risk of losing it or you making things very complicated for me?” Of course, all this foreshadowed some of the problems we just experienced in Crypto, right?. He sees Bitcoin going way, way, way higher. Trying to get a 4 or 5% income stream made no sense to him. And it was against his fiduciary responsibilities as he saw it. I respect that.
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