May 7, 2024

Is Michael Saylor Pulling a George Soros?

Putting politics aside, George Soros is one of the most famous asset managers to ever do it. Michael Saylor is the co-founder and former CEO of the software company MicrosStrategy. What do Soros and Saylor have in common? Let’s dive in!

Who is George Soros?

Soros began his international trading career in 1954 in London at the arbitrage desk of Singer & Friedlander. In 1956, he moved to New York and became an arbitrage trader for the father of a former co-worker at F. M. Mayer. In 1959, he moved to Wertheim and Co. and became an analyst of European securities (a position he held until 1963). It was during this time that he developed his theory of reflexivity, which expanded upon the ideas of his tutor at the London School of Economics, Karl Popper. In 1970, Soros went on to found Soros Fund Management and became its chairman.

Soros’ theory of reflexivity states that markets move not on economic fundamentals but on the flawed ideas of its human participants. The theory goes on to posit that ideas and events influence one another in reflexive feedback loops. Soros argued that this process leads to markets having boom and bust cycles that are often far more volatile than economic literature suggests. This theory runs counter to the concepts of economic equilibrium, rational expectations, and the efficient market hypothesis. Soros would lean on his thesis significantly when he placed his bet against the British pound sterling in the early 1990s (more on that below).

Soros vs. The Bank of England

In 1990, England joined Europe’s exchange rate mechanism (ERM), a system for valuing the various currencies of Europe against each other. Soros noticed an opportunity and began stockpiling a massive short position against the British pound. In his estimation, the pound was valued far too high on ERM, inflation in the United Kingdom was extremely high (triple the German inflation rate), and interest rates were crushing British asset prices. He felt the Bank of England had two choices: 1) raise interest rates or 2) float the currency.

The ERM made adjusting rates difficult, a big problem for The Bank of England. So Soros decided to press his bet. He bought German marks while selling British pounds on the forex market, going long on one of Europe’s strongest currencies while shorting the one he believed was primed for weakness. This move is known as a speculative attack. Pressure on the Bank of England began to mount, and Soros continued to press his bet, shorting $10 billion worth of pounds.

After hiking interest rates and pumping in cash had little effect, the pound reached a new low against the mark on September 16, 1992. The Bank of England was forced to exit the European ERM and devalue the pound sterling on a day that became known as “Black Wednesday.” The pound would return to floating freely against other European currencies. Soros’s trade produced one of the biggest wins in market history, an estimated $1.5 billion in profit. In addition to seeing his personal wealth skyrocket, the size of Soros Fund Management’s assets saw tremendous growth as the firm was now recognized as a major player in currency markets.

Who is Michael Saylor?

Michael Saylor is currently the executive chairman of MicroStrategy, a company he co-founded in 1989. He was MicroStrategy’s CEO until 2022. MicroStrategy provides business intelligence, mobile software, and cloud-based services. Saylor is one of Bitcoin’s biggest advocates. MicroStrategy has acquired over 214,000 BTC in the past several years, and currently holds more than 1% of the total supply. MicroStrategy recently rebranded itself as the “world’s first Bitcoin development company.”

Saylor’s Views on Bitcoin

Saylor’s affinity for Bitcoin runs deep. He believes that Bitcoin will replace gold as the global store-of-value. He has compared buying Bitcoin to buying a home in a city that everyone wants to move to. According to Saylor, Bitcoin is “the apex property of the human race.” He has also recently highlighted three short term catalysts:

  1. First, he sees the Bitcoin halving as a major catalyst moving forward. “You’re going to see $12 billion of natural selling per year converted into $6 billion of natural selling per year,” Saylor said. Theoretically, the halving will decrease selling pressures and may allow the price to go up. The previous Bitcoin halvings have also served as price catalysts in the short term.
  2. Saylor believes the spot Bitcoin exchange-traded funds (ETFs) will continue to put more buying pressure on the market. “These ETFs opened up an entire financial world of awareness and opportunity and functionality to the 99% mainstream investors,” Saylor said. “And you really can’t underestimate just how profoundly important that is to the entire network.”
  3. Saylor also points to the new accounting standard that changes the way corporations can account for Bitcoin on their balance sheets. “This is going to open the door for corporations to adopt Bitcoin as a treasury asset and create shareholder value with their balance sheets,” Saylor said. For more on this, please check out our recent article, “FASB’s Digital Asset Rule Change for Corporate Cash Management.”

Is Saylor Using Soros’ Playbook?

According to Dylan LeClair, it seems that Saylor may be executing a speculative attack on the US dollar.

As LeClair puts it, Bitcoin is an asset to the holder and a liability to no one else. Fiat currencies are “quite literally created through lending.” So what would you do if you believed the cost of capital is mispriced? Acquire the strong currency by borrowing, and short the weak currency.

Twice in a ten day span in March of 2024, MicroStrategy announced plans to raise $1.1 billion in capital through two convertible bonds offerings in order to buy Bitcoin.

“Since late 2020, the company has come to market with convertible offerings and to a lesser extent at-the-market stock offerings for the specific purpose of investing the proceeds in Bitcoin,“ said Michael O’Rourke, chief market strategist at JonesTrading.

Saylor also currently owns 10% of MicroStrategy stock. Over the past year, he has sold a total of 335,000 shares of MicroStrategy Inc and has not made any purchases of the stock. His most recent sale was April 17th. While they can only be considered speculations at this point, some believe he is using this cash to buy Bitcoin directly.

Bitcoin’s supply is immutable, and a maximum of 21,000,000 Bitcoin will ever be in circulation. Theoretically, there can be an infinite amount of USD printed (or any fiat currency for that matter). Bitcoin’s scarcity could be setting the stage for the mother of all speculative attacks.

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Investment advisory services offered through Crossover Capital Brands, LLC (dba Crossover Capital), a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

This material is intended for informational purposes only. It should not be construed as legal or tax advice, and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third party sources, and is believed to be reliable.

Alternative investments – such as hedge funds and private equity/venture capital funds – are speculative and involve a high degree of risk. Likewise, the emergence of digital assets comes with its own speculative characteristics and involves a high degree of risk. Various digital assets have unique features, and the regulatory risk environment continues to change as governance requirements, rules, and lawsuits emerge. There may be material differences in the type of marketplaces available for digital assets, and there could be significant restrictions or limitations on withdrawing from or transferring these types of investments. Digital assets may incur higher fees when compared to traditional assets, and these expenses may offset returns.

Crossover Capital may not be able to independently verify digital asset valuations provided by institutions that hold or offer digital asset services. As a result, Crossover Capital will generally rely on information reported to it by third parties. As such, the information contained herein is for informational purposes. Clients should recognize that they may bear digital asset-based fees and expenses at the manager-level, as well as indirect fees, expenses, and performance-based compensation for digital assets. Spot bitcoin exchange-traded products were recently approved for listing and trading by the SEC. However, such approvals do not indicate SEC approval to use or invest in bitcoin. Clients should remain cautious and aware of the various risks associated with digital assets that have a value tied to bitcoin or other crypto related products.

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