Shares of business intelligence specialist and cryptocurrency investor MicroStrategy (NASDAQ:MSTR) fell as much as 23.2% on Tuesday morning. Bitcoin prices were down by roughly 10% this morning while MicroStrategy CEO Michael Saylor fortified his commitment to the leading cryptocurrency in a CNBC interview. As of 11:40 a.m. EST, the stock had recovered slightly to a 20% decline.
Cryptocurrencies have posted significant price drops over the last two days amid criticism from important thought leaders such as Microsoft co-founder Bill Gates, Treasury Secretary Janet Yellen, and Tesla CEO Elon Musk. Yellen argues that Bitcoin is speculative and ineffective as a medium for settling financial transactions. Gates thinks Bitcoin could be useful for large companies and institutional investors, but it's more dangerous than promising for retail investors. Even Musk, whose company invested $1.25 billion in Bitcoin earlier this month, says the currency looks overvalued at the moment. Hence, the cryptocurrency price drop that started over the weekend continued on Tuesday.
MicroStrategy has invested $1.145 billion in Bitcoin, converting its long-term cash reserves into cryptocurrency shares and then adding more with the help of new debt papers. Hence, large changes in Bitcoin prices tend to have an immediate effect on MicroStrategy's stock as well.
On that note, Saylor hit the airwaves on CNBC's Squawk Box on Tuesday morning, defending his Bitcoin investment from a long-term perspective even as the currency's prices continued to fall. Eventually, Saylor said, Bitcoin will replace gold as the gold standard for long-term value holdings.
"There's $10 trillion dollars worth of gold in there, $1 trillion in bitcoin. The bitcoin is going to flip gold and it's going to subsume the entire gold market cap," Saylor said. "Then it's going to subsume negative-yielding sovereign debt and other monetary indexes until it grows to $100 trillion dollars."
In Saylor's view, Bitcoin is not designed for spending and money transfers but for long-term saving. That approach mirrors what Social Capital Hedosophia founder Chamath Palihapitiya said in a Bloomberg video last week.
"The real question I think people should be asking ourselves is, OK, Bitcoin becomes a de facto reserve currency that basically displaces gold," he said. "What replaces the U.S. dollar?"
Like Saylor, Palihapitiya believes Bitcoin has significant value as a long-term value storage tool while other cryptocurrencies will deliver game-changing upgrades to other types of financial transactions such as everyday purchases, loans, insurance policies, and digital banking.
That commitment may serve MicroStrategy well in the long run, assuming that Saylor and Palihapitiya are onto something here. At the same time, it has exposed Saylor's company to cryptocurrency risks and short-term volatility such as today's sudden drop.