MicroStrategy: A Trailblazer in the Bitcoin Economy
"If you don't believe me or don't get it, I don't have time to try to convince you, sorry."
- Satoshi Nakamoto, Creator of Bitcoin
Michael J. Saylor isn't waiting for the rest of the corporate world to 'get' Bitcoin. Beginning in August of this year, the 55 year old co-founder and CEO of the U.S. firm MicroStrategy began directing his company to convert the cash reserves on its balance sheet into Bitcoin, becoming the first major public firm in the world to adopt Bitcoin as its primary reserve asset.
The directive has lead the company to acquire some 40,824 Bitcoins to date, and just this past week the firm made the landmark announcement that MicroStrategy would issue $650 million in convertible notes at a rate of 0.75% to finance another major Bitcoin purchase (~36,000 Bitcoin at current prices). The issuance of cheap, dollar-denominated debt to finance a Bitcoin purchase is another first in the corporate world, and the company is poised to become a leader in the growing Bitcoin economy.
Saylor's decision to become the Bitcoin pioneer of corporate America is important for many reasons, but MicroStrategy's approach could mark a potential watershed moment, if they indeed potentially solve a problem that plagues many public U.S. companies in 2020: what to do with ample cash reserves amidst all-time high asset valuations?
One of the chief criticisms from the investors in behemoth companies such as Apple, Microsoft, and Berkshire Hathaway is that these companies are carrying enormous amounts of U.S. dollars on their balance sheets, the dollar being a wasting asset losing value each year. Warren Buffett himself has repeatedly commented over the last few years that it has been very difficult as an investor to determine how to allocate large amounts of capital given the current economic conditions, as a decade of dovish central banks has brought asset prices to the highest valuations in human history. Investors are pressuring CEO's to act at a time when there are simply few sensible investment options available.
Where does Bitcoin fit into the equation?
Bitcoin is the hardest and most secure money in the known world. Bitcoin makes up for the fact that it doesn't offer any yield in being the only monetary asset in existence in which the total known supply has a hard cap - all out of the reach of any central authority (or government). The Bitcoin network is therefore an exceptional place to secure the stored value of cash assets over a long time horizon, because you can be certain that no government will inflate your purchasing power away .
Saylor recognizes that Bitcoin is the superior store of value at this moment in time, and further recognizes that allocating with haste guarantees his company a prominent, first-mover position ahead of other companies who are likely to follow MicroStrategy's lead. Additionally, storing your purchasing power in an inferior store of value is a grave threat to a capital portfolio. Just imagine if you stored $1000 in copper instead of $1000 in gold over a 50 year period.
Finally, the first mover advantage which MicroStrategy is set to enjoy will be immense. Game theory suggests that once one firm has adopted Bitcoin as a reserve asset, other firms are likely to enter the fray, as the benefits of the strategy become more widely known and accepted. Who's to say there are not many firms who wish to do exactly what Michael Saylor has done, but were waiting for a company of size to take the first risk?
MicroStrategy being the first also means that they will have gotten better Bitcoin prices than any other firm after them, which over the long run will end up being a monumental advantage. The purchasing power on the Bitcoin network of early entrants is akin to being an early investor of say, Microsoft or Apple.
In brief, Michael Saylor's MicroStrategy, while enduring criticism and skepticism in the short-term, has positioned itself to become the leading company in the Bitcoin economy. Being the first to adopt Bitcoin as a reserve asset has advantages which are not even fully yet known, and likely has put MicroStrategy on the path of going from a little-known business intelligence firm to one of the leading companies in the world.
I'll leave you with this: if Bitcoin hits $10,000,000, a number representing Bitcoin's ascension to a world reserve currency, MicroStrategy would approach a trillion dollar valuation based on its Bitcoin holdings alone.
Only time will tell.
You should always consider seeking financial advice from a licensed advisor before making decisions with your money, and you should not consider anything I write as financial advice but merely my opinion. Getting your financial house in order is a prerequisite for Bitcoin saving, in my opinion.
Disclosure: nothing in this article should be considered financial advice and I am not a financial advisor. Do your own research as everything in finance carries risk.