Early last week, Bitcoin got a thumbs up from an unexpected source. MicroStrategy Incorporated (Nasdaq: MSTR), a publicly traded company, shook the entire crypto community when it purchased $250 million worth of Bitcoin (21,454 BTC). The purchase was part of MicroStrategy’s “new capital allocation strategy“. This is the largest Bitcoin purchase by a publicly traded company and to put it plain words, this single purchase sums up Bitcoin’s value proposition. This is not just positive words coming from Twitter or other social media, but action from a Nasdaq heavyweight that decided to swap fiat for Bitcoin as its treasury reserve asset.
MicroStrategy, was founded in 1989 and has a market cap of around $1.3 billion. In 2019, the company showed revenue of $486 million, profit of $34 million, total assets of $917 million with an employee count of 2,396 people. Some if its clients include big retailers like Pepsi and Adidas.
MicroStrategy’s decision to place a bet of this size on Bitcoin is a big deal.
Usually, most companies will put surplus capital into bonds and other investments, as part of their treasury management strategy. MicroStrategy’s decision may seem to stray from the norm, but may be more than meets the eye.
Bitcoin has outperformed nearly every other traditional asset this year. Bitcoin growth rate is far better than that of G4 central bank balance sheets. Currently, the correlation between Bitcoin and Gold is at a high positive and shows how Bitcoin is well on its way to becoming the preferred store of value asset globally, in response to geopolitical and macroeconomic developments.
Barry Silbert, posted on Twitter that the move could serve to tie MicroStrategy’s valuation to Bitcoin. This strategy could pay off in spades, if Bitcoin continues to rise, as it has been in recent months.
MicroStrategy, a $1.2 billion company, just turned itself into a publicly-traded bitcoin play. Smart https://t.co/tCXiAVc8w7
— Barry Silbert (@BarrySilbert) August 11, 2020
I wouldn’t be surprised to see other publicly traded companies connecting their fortunes to Bitcoin, hopping that as Bitcoin goes up their stock will follow and at the same time they hedge against inflation. A bet this size on Bitcoin by a public company is the first of its kind, although there have been other companies like Overstock that have heavily invested on crypto.
The flood of money printed by central banks, to stave off the economic crisis triggered by the pandemic, has created an uncertainty over fiat’s future. So, it certainly makes a lot of sense when you hear that publicly traded companies like MicroStrategy and institutional investors like Paul Tudor Jones are betting big on Bitcoin.
We could be seeing the start of a domino effect that will lead us to the realization Satoshi’s vision of a global, decentralized financial system. It began with macro investor Paul Tudor Jones in May. Jones explained that he now prefers Bitcoin to gold as a hedge against the great monetary inflation that we are experiencing.
It’s been followed up with MicroStrategy’s decision to invest in Bitcoin with comments from its CEO like: “MicroStrategy observed distinctive properties of Bitcoin that led it to believe investing in the cryptocurrency would provide not only a reasonable hedge against inflation, but also the prospect of earning a higher return than other investments.”
Bitcoin is becoming serious business.
So serious that the US bank regulator recently permitted U.S. banks to hold Bitcoin for their customers. US banks got the green light from the Office of the Comptroller of the Currency (OCC) for cryptocurrency custody services. This is big. Now any bank can act as a cryptocurrency custodian and store cryptographic keys associated with digital assets for their clients.
The lack of regulatory clarity has been a major roadblock for most institutional investors, that are usually skeptical of new asset classes. This development lays the groundwork for the further integration of cryptocurrencies into the existing financial system and sends a clear message to banks that crypto should be embraced and not dismissed. It also clears the way for providing traditional bank accounts to cryptocurrency companies and for organizations like Coinbase and BlockFi to become banks and receive banking deposits directly, without needing intermediaries.
MicroStrategy’s decision is a real game-changer for Bitcoin.
This is the first time a company of this size has decided to make Bitcoin its reserve. People are looking for a way to protect their wealth or that of their shareholders. Eventually, most companies will make Bitcoin part of their treasury reserve strategy. Who knows, maybe we will even see central banks adopt Bitcoin as part of their strategy for allocating their reserves alongside gold.
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