Proof-of-Reserves: Is it applicable to MicroStrategy?

Question remains whether transparency offered by PoR outweighs security risks for MicroStrategy investors

Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.

The following is a guest post and analysis from Shane Neagle, Editor In Chief fromThe Tokenist.

On Tuesday, Michael Saylor, the Executive Chairman of MicroStrategy (NASDAQ: MSTR), riled up the Bitcoin part of the internet. At an event adjacent to Bitcoin 2025 conference in Las Vegas, Saylor was asked whether the company (rebranded as Strategy) has any plans to publish proof-of-reserves for its Bitcoin stash, presently holding 580,250 BTC (~$62.8 billion).

Answering the question, Saylor made it apparent he is not a fan of the idea because:

“It actually dilutes the security of the issuer, the custodians, the exchanges and the investors. It’s not a good idea, it’s a bad idea. It’s like publishing the addresses and the bank accounts of all your kids and the phone numbers of all your kids. And then thinking, somehow, it makes your family better.”

Many influencers have already likened such sentiment to Sam Bankman-Fried. It was during the collapse of his FTX crypto exchange when the term proof-of-reserves (PoR) was introduced to the wider public. This prompted Binance, the world’s largest crypto exchange, to implement its own PoR system in late 2022.

Others have also likened Saylor to Do Kwon, having headed the collapsed Terra (LUNA) blockchain project, powered by algorithmic stablecoins, yields, and Bitcoin reserves. After the catastrophic cascade of crypto bankruptcies during 2022, it is reasonable to be cautious, but is Michael Saylor’s stance as problematic as some make it seem?

Proof-of-Reserves Origin

Pushed by the collapse of Mt.Gox exchange in 2014, proof-of-reserves (PoR) was first floated as a way to instill trust in custodial institutions. Although Mt.Gox is commonly known as a hack, wherein up to 850k BTC was pilfered from hot wallets, the exchange was also mishandled outside technical security.

Namely, Mt.Gox CEO Mark Karpeles, was convicted for tampering with the exchange’s records in order to inflate the company’s holdings, Karpeles received a 2.5-year sentence that was suspended for four years in early 2019. Following the worst year of 2022 for the crypto sector, exchanges were scrambling to lift confidence.

Just using the example of imploded BlockFi, the vulnerability of asset holding follows a clear pattern across the board:

If a custodial institution holds 1 BTC, it generates a liability for the user for that 1 BTC. Otherwise, in a self-custodial scenario, the user would generate their own liability.

But what if the custodial party wants to increase attraction to their business?
Then the users’ holdings would be utilized to offer crypto-backed loans and yields on savings accounts.

Under the hood, this would mean that the ideal 1:1 redemption liquidity would be stretched to other parties. In the case of BlockFi, this was Three Arrows Capital (3AC).

And if liquidity is stretched (diluted), the initial depositor can no longer count on getting their 1 BTC as reliably in all market conditions.

This pattern created a PoR race in 2022, aiming to reveal which types of assets are covered, by how much, how frequently they are audited, and by whom.

Image credit: Nic Carter at niccarter.info

However, even shortly after the FTX collapse, as Binance hurried to report its PoR, it became obvious there are some inherent problems with this approach.

PoR Usefulness

In the global system of fractional reserve banking, it is not possible to redeem all the money if all the banks’ clients were to suddenly attempt to withdraw. With that said, institutions checking on banks, such as FDIC, take into account both their assets and liabilities to determine their overall state of solvency.

Additionally, the central bank is the lender of last resort (LOLR), able to add funds electronically to the bank’s balance sheet. We have seen this in play in early 2023 during the regional banking crisis in the US. During this period, Bitcoin saw its first major rally after recovery from abysmal 2022.

That’s because Bitcoin, as a digital ledger available for public scrutiny, has embedded transparency. Every bit of its 21 million supply is recorded, backed by computing proof-of-work power. While Bitcoin does not natively include a Proof of Reserves mechanism, the visibility of balances and transactions enables external PoR audits when entities sign messages from their addresses.

If BTC addresses can be reliably linked to specific holders, further insight into asset ownership and distribution becomes possible. The problem is, how to check if entities holding BTC hold the amounts they claim to hold? There are multiple ways in which this can be manipulated:

• Prior to PoR attestation, the custodial could inflate reserves by temporarily borrowing assets. Therefore, audits would have to be randomized.
• A PoR snapshot as such doesn’t guarantee 1:1 reserves until the next snapshot.

At the end of the line, PoR audits are not standardized, which means there is loose space wherein exchanges can selectively disclose information, use varying methodologies, or omit critical details, ultimately undermining the consistency, transparency, and trustworthiness of the proof-of-reserves process.

Where Does MicroStrategy Fit In?

As you may have noticed, MicroStrategy is not a crypto exchange, but a publicly traded company with a propensity towards mixing software development with more conventional web3. As such, the company is obligated to file quarterly (10-Q) and annual (10-K) reports. On top of that, publicly traded companies have to file Form 8-K for unscheduled events and changes that concern shareholders’ bottom line.

All of this information is readily available through the SEC’s EDGAR system. In other words, Strategy already operates in a regulated arena with certain expectations. These cover the audit of their liabilities, assets, and equity holdings in the aforementioned reports, as well as acquisition costs and impairments.

But, Strategy would fall out of line if it were to suddenly start revealing BTC wallet addresses, for which there is zero obligation. Conversely, Strategy could incur liability and lose trust if on-chain activity would become a subject of scrutiny, misinterpretation, and hacking attempts.

Moreover, if Strategy’s BTC holdings are held in cord storage or multi-signature wallets, which is likely, public disclosure of wallet addresses would go against custodial best practices which are also regulated. In short, by doing so, Strategy would be perceived as a very unserious company.

What Is Strategy’s Overall Target?

Strategy’s overall goal remains the same – raise capital by selling new MSTR shares to buy more Bitcoin, as an appreciating asset due to its fixed scarcity. As of Q1 2025, Strategy reported 65% completion of this “21/21” plan to raise $42 billion.

Raising $21 billion in equity and $21 billion in fixed-income between 2025 to 2027. Image credit: MicroStrategy

To attract investors, Strategy launched Series A Perpetual Strike Preferred Stock (STRK) with an 8% cumulative annual dividend. From June 30th, STRF is another perpetual preferred stock with a dividend at 10%, payable quarterly. Other than offering higher yield, STRF is also non-convertible as a form of risker income that could go up to 18%.

In other words, these are yields for diluting shares in order to buy Bitcoin. And investors would buy MSTR shares instead of Bitcoin itself because demand creates a premium to its net asset value (NAV). It also bears remembering that many investors don’t want the responsibility of self-custody or thinking through risk management, which is why MSTR, a regulated stock on NASDAQ, makes for an attractive Bitcoin proxy.

At the end of the line, Michael Saylor is not printing new Bitcoin and not overleveraging to the extreme extent we’ve seen with SBF or Do Kwon. In an interview to Financial Times, he noted that “Bitcoin could fall 90% and stay there for four or five years, and we would still be stable,”

The Bottom Line

It could be the case that, for some reason, Bitcoin crashes in the age of institutional adoption and Strategic Bitcoin Reserve. Consequently, MSTR stock would crash as well.

However, such a scenario would be far removed from concerns related to Strategy’s proof-of-reserve, whether it would be adopted as a plan or discarded as a liability. Ultimately, the relevance of PoR as applied to Strategy seems a conflation of categories.

Or rather, it seems that the justified energy gained from harsh 2022 lessons is misdirected.

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