How MicroStrategy can be the black swan of the market

The Black Swan Logic, a book written by Nassim Taleb and published in 2007, deals with unexpected events such as market crashes, technological advances, epidemics and others. As such, MicroStrategy can be a black swan for its Bitcoin-backed lending.

“First, the Black Swan is a outlierbecause it is beyond the reach of common expectations, because nothing in the past can convincingly point to its possibility”explains Nassim Taleb in his book. “Second, it has an extreme impact. Third, despite being a outlierhuman nature makes us develop explanations for its occurrence after the event, making it explainable and predictable.”

With Michael Saylor, founder and CEO of MicroStrategy, strongly convinced that Bitcoin is the future, his company took out a loan from the bank Silvergate about a month ago. Basically, he left his bitcoins as collateral, to buy more bitcoins.

To acquire this $205 million loan, MicroStrategy had to provide a 4x guarantee of $820 million worth of Bitcoin, totaling 19,466 BTC. However, the company will receive a margin call if the loan amount is 50% higher than the collateral. That is, if Bitcoin hits $21,000 — it has already hit $25,400 this Thursday (13) — and its bitcoins have to liquidate to settle the debt.

This is where the story gets complicated for MicroStrategy

In the days after MicroStrategy’s CFO revealed this price, which would force the company to sell these bitcoins, Michael Saylor went public and stated that the settlement price would be $3,562 and not $21,000.

To better understand this account, MicroStrategy currently has 19,466 BTC ($588 million) tied up in this loan. Plus, it has another 95,643 BTC ($2.86 billion) for free. That’s why Saylor believes in Bitcoin so much that he would be willing to risk all of the company’s money to guarantee this loan.

While it’s hard to imagine Bitcoin trading at $3,500 again, a price not seen since 2018, it’s exactly this slim chance that a Black Swan will emerge. Also, while unlikely, bear markets have already proven to be just as difficult as bull markets in the stratosphere.

Although Saylor later receives other guarantees, such as the company’s own shares, it is noteworthy that these would also be devalued. After all, these go hand in hand with BTC due to the exposure of the company. Apart from that, there are not many options, such a loan to buy more Bitcoin – with its own bitcoins as collateral – shows that the company is betting everything on this cryptocurrency.

The Black Swan event would then be MicroStrategy’s bankruptcy due to the founder’s high belief in Bitcoin. Not that he’s wrong, but it’s this loan that could be the trigger for this story. After all, other companies that own BTC, such as Tesla, would remain financially healthy despite an eventual 90% decline.

Black Swan author has a great connection to Bitcoin

Nassim Taleb, author of The Logic of the Black Swan, was a big believer in Bitcoin for a while. In addition to investing in the currency, Taleb even wrote the foreword to the book The Bitcoin Standard. Going further, Bitcoin itself can be considered a black swan. After all, no one would have thought that it would become so big and impactful in the financial and cultural life of humanity.

However, Taleb went on to criticize Bitcoin, calling it a Ponzi scheme, doubting its decentralization and stating that BTC will never be a currency due to its volatility. So your connection to this article is somewhat curious.

Finally, Michael Saylor is so involved with Bitcoin that the MicroStrategy situation deserves to be watched closely. What is the probability that Bitcoin drops 90% and MicroStrategy goes bankrupt? Very low of course, but this is the perfect definition of a black swan.