Is $MSTR over? Jason takes his victory lap. | E2216
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This Week in Startups episode dives deep into the complex world of crypto and financial schemes, focusing on MicroStrategy's dramatic fall from trading at 3x Bitcoin's value to trading at a discount to their holdings. Host Jason Calacanis discusses how the company's convoluted financial engineering finally caught up with them as Bitcoin's price declined. (07:06)
The episode also covers S&P Global's downgrade of Tether's stability rating from "constrained" to "weak" due to increased risk exposure, including 5.6% backing in Bitcoin. Jason argues this validates his long-standing concerns about both companies' overly complex financial structures. (22:59)
• Main themes include crypto regulation failures, financial complexity as a warning sign, and the importance of transparent business models in investment decisionsSpeakers
Jason Calacanis
Serial entrepreneur, angel investor, and host of This Week in Startups podcast. He has invested in over 600 startups and achieved significant exits including Uber and Robinhood, building a portfolio valued at over $200 billion in companies. Jason is also a 25% owner of the All-In podcast.
Alex Wilhelm
Technology journalist and startup market analyst who previously worked at Crunchbase. He provides financial markets expertise and startup industry insights, bringing experience analyzing public and private company financial structures.
Key Takeaways
Avoid Overly Complex Financial Schemes
Jason outlined his "four red flags" for identifying problematic investments: complexity, too good to be true returns, lack of auditing, and attacking critics. (07:36) MicroStrategy exemplified all four red flags with its convoluted Bitcoin strategy involving multiple layers of preferred stock, loans, and complex financial instruments that even sophisticated investors struggled to understand. When a company can't explain its business model to a 12-year-old, it's typically a massive warning sign that should trigger immediate skepticism from potential investors.
Understand Investment Priority Structures
A critical lesson emerged about how loans take precedence over equity in corporate structures. (14:35) When MicroStrategy layered debt on top of their Bitcoin holdings, loan holders got paid first before equity shareholders, creating significant risk for regular investors. This principle applies broadly - when companies add venture debt or other loan structures, existing shareholders face dilution risk and subordinated claims on assets, making their investments inherently more risky than direct asset ownership.
Direct Asset Ownership Beats Financial Engineering
Jason consistently advocated for buying Bitcoin directly through trusted platforms like Robinhood or Coinbase rather than through MicroStrategy's complex structure. (07:31) This principle extends beyond crypto - when you want exposure to an asset, direct ownership typically provides better risk-adjusted returns than complex financial products wrapped around that asset. The premium investors paid for MicroStrategy (trading at 3x Bitcoin's value at peak) evaporated as the structure's complexity created more risk than value.
Regulatory Delays Create Offshore Advantages
The eight-year delay in US stablecoin regulation allowed offshore companies like Tether to dominate markets that should have belonged to US companies like Circle. (25:54) Jason argued that both Republican and Democratic administrations bungled crypto regulation, creating an environment where less transparent, offshore entities gained market share. This demonstrates how regulatory uncertainty can inadvertently advantage less compliant players and hurt domestic innovation, highlighting the importance of clear, timely regulatory frameworks.
Identify and Reward Glue Employees
Drawing from behavioral scientist John Levy's research, Jason discussed the critical importance of "glue employees" - high EQ team members who multiply everyone else's results through proactive support and collaboration. (44:15) These foundational employees create organizational stability and should comprise 10-20% of a team. However, founders must distinguish between helpful glue employees and "rabble rousers" who stir up problems. Smart leaders actively identify glue employees by asking team members who helps them most, then ensure these crucial contributors are properly compensated and recognized.
Statistics & Facts
- MicroStrategy fell from trading at 3.1x its Bitcoin holdings at peak to 0.856x (a discount) as of the recording date, representing a two-thirds loss in value. (07:13)
- Tether's USDT stablecoin has $184.5 billion in liabilities backed by assets that include 5.6% Bitcoin exposure, exceeding their 3.9% over-collateralization margin. (23:34)
- S&P Global noted that Tether's higher-risk holdings including corporate bonds, precious metals, Bitcoin, and secured loans now comprise 24% of their total assets, leading to their rating downgrade. (27:29)
