Friday’s upcoming MSCI decision on whether to exclude companies like Strategy from its global indices is the nearest catalyst, since an exclusion could trigger passive selling of the shares even if Saylor plays down its importance. Strategy’s new willingness to sell Bitcoin as well as buy it removes the assumption that the largest corporate holder is a one-way buyer, adding a potential source of supply in weaker markets. On the positive side, regulatory guidance from US agencies has eased a key overhang. Bitcoin still has to compete for capital with AI stocks and with Treasury yields that have risen sharply this year, so a turn lower in yields after US inflation data would be the clearest macro tailwind for his $100,000 call.
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Saylor is talking his book, but his core pitch, that AI makes scarcity more valuable, is an argument worth weighing on its merits.
Summary:
- Strategy executive chairman Michael Saylor said Bitcoin should move back above $100,000 after bottoming slightly below $60,000, with prices now in the $80,000s, but gave no timeframe
- He argued AI will erode the value of labour-based equities and push investors towards scarce assets such as gold, prime real estate and Bitcoin
- Saylor cited favourable US regulatory guidance, accelerating bank adoption and tokenisation as new tailwinds, calling the stalling of the Clarity Act good for the industry
- He defended Strategy’s recent Bitcoin sales as part of running a structured finance company, but said the firm expects to keep adding to its holdings
- Saylor called MSCI’s possible exclusion of Strategy from its indices, due to be decided on Friday, a bad precedent but said it was not that important to the company
Strategy co-founder and executive chairman Michael Saylor said Bitcoin is entering a new bull market and should climb back above $100,000, arguing that artificial intelligence will push investors towards assets whose supply cannot be expanded.
Speaking to Bloomberg Television at DC Fintech Week on Tuesday, Saylor said Bitcoin bottomed slightly below $60,000 during the past year’s contraction and has since rebounded into the $80,000s. He declined to give a timeframe for his $100,000 target, saying he plans in centuries, not months. Strategy’s longer-term forecast is for Bitcoin to grow 20% to 30% a year over the next two decades.
At the heart of his case is scarcity. Saylor argued that AI will reduce the value of companies built on large human workforces or on chasing the next breakthrough product, while increasing demand for scarce capital such as Palm Beach real estate, gold and Bitcoin. In his words, investors will look for things robots cannot make more of.
The argument has some logic. If AI makes labour and software abundant, assets with fixed supply could gain relative appeal. But it comes from the executive chairman of the world’s largest corporate Bitcoin holder, with a stake he put at more than $70 billion. Bloomberg’s interviewers also challenged it, noting that AI is absorbing much of the market’s capital and that the scarcity rotation has yet to show clearly in Bitcoin, which remains about 30% below last year’s record high.
Saylor countered that since Strategy began buying in August 2020, Bitcoin has returned about 38% a year and the company’s shares more than 50% a year, outpacing gold and every Magnificent Seven stock except Nvidia. By his own description, Bitcoin is also a volatile asset, with volatility of around 40, while Strategy’s shares run at roughly 80.
He pointed to new tailwinds: favourable US regulation, faster bank adoption, the spread of tokenised securities and the growth of digital credit. He said the Senate’s failure to advance the Clarity Act was the best outcome for the industry, as guidance from the Treasury, the SEC and the CFTC proved more supportive than the bill’s restrictions.
Saylor also defended Strategy’s sale of a small amount of Bitcoin in June, when prices were around $73,000, a move that unsettled the market. He described the company as a structured finance business that must be able to buy or sell Bitcoin, equity or credit as conditions require, mainly to support dividends on its credit products. He said those products pay 10% to 12% treated as a return of capital, which defers tax, and that the company expects to keep increasing its Bitcoin holdings in a bull market.
MSCI is due to decide on Friday whether to exclude companies like Strategy from its global indices on the grounds they mainly accumulate assets. Saylor called the proposal a bad precedent, argued Strategy is an operating company like banks and insurers, and said the decision was not that important to the firm.
Explainer: MSCI, Strategy and the index question
What is MSCI?
MSCI is one of the world’s largest index providers. Its benchmarks, such as the MSCI World and MSCI USA, are tracked by trillions of dollars in pension funds, ETFs and other investment products. When a company joins or leaves an MSCI index, funds that track it generally have to buy or sell the shares, whatever their view of the company.
What is Strategy?
Strategy, formerly MicroStrategy and listed under the ticker MSTR, started as an enterprise software company. Since August 2020 it has focused on buying and holding Bitcoin, funded largely by issuing shares, debt and preferred-style securities. It is now the largest corporate holder of Bitcoin, with holdings Saylor puts at more than $70 billion.
What are “digital credit” products?
These are Strategy’s income-paying securities, such as STRC, backed by the company’s Bitcoin holdings. Saylor says they pay 10% to 12% a year, treated as a return of capital, which generally defers tax rather than removing it. The company may sell Bitcoin or other assets to fund these payments, which is why it now says it must be free to sell as well as buy.
What is MSCI considering?
MSCI has been reviewing whether companies whose main activity is accumulating digital assets, often called digital asset treasury companies, should stay in its global equity indices. It is assessing whether these firms are operating businesses or are closer to investment vehicles, which index providers often exclude.
Why does it matter?
Exclusion could force index-tracking funds to sell Strategy shares, putting pressure on the stock and potentially on the company’s ability to raise money. It would also set a precedent for the growing number of similar companies. Saylor argues Strategy is an operating company comparable to banks and insurers, since it creates and sells credit products. He says the decision is not that important to the firm.
What happens next?
MSCI is due to announce its decision on Friday, October 16. A decision to exclude would typically take effect at a later index review, giving funds time to adjust.
This article was written by Eamonn Sheridan at investinglive.com.