Hunt was a rich man with simple tastes. He drove a beaten-down Cadillac. Though he weighed over 300 pounds, he flew economy class. He was one of the few oil barons who did not drink.
The plain lifestyle hid a religious fervour. Hunt feared an apocalypse was looming. Money would become worthless, and precious metals like silver would surge.
In 1974, Nelson Bunker Hunt and his brother William Herbert Hunt accumulated silver. Silver was just US$1.50 an ounce (about 1% of the price of gold). In five years, the Hunt brothers had cornered 250 million ounces of silver, which was almost half of the world’s silver.
The price had risen more than 30-fold to US$50 an ounce, which was an all-time high. By January 1980, the Hunts held US$4 billion worth of silver, which is about US$18 billion today.
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The regulators took action. Congress banned margin trading in silver. The banks then made margin calls on the Hunts. On March 27, 1980, a disaster hit the silver market. The price of silver halved to US$10.50 an ounce. The Hunts eventually declared bankruptcy in 1988.
Michael Saylor, the patron saint of Bitcoin, may be following Hunt’s follies. Only this time, the precious metal is not silver — it is Bitcoin.
Michael Saylor is an MIT-trained co-founder of MicroStrategy (now known as Strategy). Michael Saylor and Nelson Bunker Hunt shared a taste for outsized bets, but not for the same lifestyle. Saylor, the Bitcoin evangelist, has embraced yachts, mansions, and art. He speaks on TV with a nasal voice that belies his firm conviction.
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Saylor has a boundless passion for the asset class. Strategy has staked its identity on piling into the cryptocurrency. Like the Hunts, Strategy’s leaders have attracted attention, boasting that the digital coin is not just an asset but the future of money itself.
The parallels are striking. Bitcoin, like silver in the 1970s, has a mystique. Its supply is limited. It is said to be a hedge against inflation. Strategy says it is immune to the debasements of central banks.
The Hunts believed silver was “real money” in an age of dollar debasement. Bitcoin enthusiasts make the same case. The danger is that both convictions rely on a leap of faith, not on cash flow or tangible use.
Strategy’s balance sheet has become less a corporate statement than a Bitcoin tracker. The firm has borrowed and raised equity to buy more coins.
Over 80% of the market cap consists of Bitcoin. Strategy Inc. holds about 632,457 BTC. It has been acquired for US$46.5 billion ($59.6 billion) at an average US$73,500 each.
It is now worth US$70 billion, the stake equals nearly 3% of Bitcoin’s supply. The bet ties Strategy’s fate entirely to Bitcoin’s volatile fortunes.
Bitcoin’s volatility is notorious. One day, it is hailed as the new gold. The next day, it is described as a pet rock with a blockchain. If the price falls by half, as it has done more than once in a year, Strategy’s paper fortune evaporates. Unlike exchanges, which generate revenue from trading, Strategy’s bet is binary.
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The Hunt brothers discovered that borrowing to speculate magnifies gains and losses. Margin calls arrived in 1980. The Hunts were forced to liquidate at the worst possible moment.
Strategy is walking a similar tightrope. Strategy Inc has used over US$4 billion of debt to buy over 226,000 Bitcoin worth US$14 billion. Leverage amplifies upside. Every 10% BTC gain adds over US$1.4 billion. The downside risk is severe. A 30% fall erodes US$4.2 billion in equity value.
Bitcoin could lose much of its shine. Michael Saylor once said: “You may not care about Bitcoin, but Bitcoin cares about you”. This theory may be put to the test. Investors in Strategy should watch out.
Nirgunan Tiruchelvam is head of consumer and internet at Aletheia Capital and author of Investing in the Covid Era
