MicroStrategy’s adoption of Bitcoin as its primary reserve asset took the market by storm, with many arguing that the development was one of the catalysts behind BTC climbing to $19k on the charts. The firm’s Michael Saylor recently spoke about Bitcoin and his company’s decision to invest in Bitcoin, which is now up by over 182%. It should be noted here that while MicroStrategy’s investment wasn’t the first one, it birthed a ripple effect that pushed other companies to do the same.
Let’s talk about why this worked and why now, shall we?
Before answering “Why it worked,” let’s take a look at “Why now.”
Central banks across the world have printed trillions of fiat currency to ease the woes caused by the pandemic. While these banks were trying to prevent a massive disaster and a recession that would take years to return to the mean, it will come back to haunt all, even the banks that printed it.
In fact, at the time of writing, the bonds were yielding less than 1% in average returns while the stock market was on the rise. Ergo, there seemed to be no hedge, should the stock market crash.
This is the reason why one might argue that the 60-40 portfolio has already met its demise.
As a consequence of the same, there is a dire need to preserve wealth and hence, there are two options left – Gold or Bitcoin.
Clearly, Bitcoin is the best option.
Why did it work?
Well, now is the best time for companies like MS to preserve their wealth. And, what better way to do that than investing in something that doesn’t lose value over time?
As explained by Saylor, if MS’s cash reserves were to be kept in cash, they would rebase over 10-15% annually, to a point where future returns would be nullified.
“We are a software company generating cash but if we simply swept the cash into fiat currency…. then it would debase 15% a year. We’d be losing as much as we generated on the PNL.”
“Bitcoin is up a hundred percent annually [more or less], but what a lot of people don’t understand is Bitcoin is a monetary network and as a monetary network it is capable of storing and channeling energy over time without power loss.”
Bitcoin has been thought of as many things over the years – As a Unit of Account, a Medium of Exchange, a Store of Value, and whatnot. Bitcoin isn’t one of them. Instead, it is all those things and more because Bitcoin isn’t static but dynamic in nature and it is constantly evolving. With companies in a race to hedge their balance sheets before they get debased, Bitcoin seems to be the asset emerging as the preferred option.
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