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By: Luuk Soons
In the last two months, there has been some remarkable news about the adoption of Bitcoin. MicroStrategy, an American Nasdaq-listed company (MSTR) has been in the news on a regular basis. The management board of this software company had unanimously decided to switch to a Bitcoin standard. The company has exchanged almost all of its cash, totaling $410 million dollars, for Bitcoin (BTC). Why did MicroStrategy switch to a Bitcoin standard?
MicroStrategy was left with a huge cash problem and no debt. It is a healthy company with a market capitalization of $1.2 billion and a cash reserve of $500 million. Before the crisis, holding cash was not a problem, as it was easy to obtain a 5% interest rate on it. However, due to the current monetary policy of the Federal Reserve, the purchasing power of this cash position is being depreciated. Michael Saylor, the CEO of MicroStrategy called it a $500 million melting ice cube.
Michael Saylor was looking for inflation insurance. The COVID crisis and the consequences of the lockdown forced Michael to reconsider all options. One Stock Buyback program is an ill-advised long-term strategy. With the COVID crisis, real estate is no longer a self-evident safe investment. The stock markets are driven up by the money printer and are disconnected from the real economy. U.S. Treasuries are also no longer attractive. Alone gold and then Bitcoin was also discussed as a new investment option.
It was decided to take a serious look at bitcoin. In the end, the entire board of directors of MicroStrategy had to go through good study material on Bitcoin. The Bitcoin standard by Saifedean Ammous and The Bullish Case for Bitcoin by Vijay Boyapati. Furthermore, the video presentations of Andreas Antonopoulous viewed.
After several discussions, it was finally decided anonymously to convert almost the entire cash position to Bitcoin (BTC). Why everything?
Michael Saylor is a rocket engineer and has studied the history of technological discoveries, innovations, and revolutions. Michael has additionally built his wealth by investing in digital dominant networks that changed and digitized something fundamental in society. Think of Apple, Amazon, Facebook. They were investments in assets with a 10x asymmetric risk-reward ratio.
The risk was significantly reduced if he got in at the moment when the market cap surpassed $100 billion and ten times the value of a competitor. Bitcoin met all the conditions and its development history clearly indicates that it is now the dominant digital network for an apolitical, neutral, scarce and decentralized base money. Bitcoin As a new monetary technology, it is at least 10x superior to gold and, according to Michael Saylor, will change the global money market forever.
With this conviction, MicroStrategy first bought 21,454 BTC for $250 million in August and then 16,796 BTC for $175 million in September. With one-third of MicroStrategy's total market value in Bitcoin, MRST stock can be considered a Bitcoin ETF in disguise. The stock rose sharply after each announcement that more Bitcoin had been bought back.
Many boards of directors of companies with large cash positions will certainly want to know more about MicroStrategy's rationale and may eventually want to add Bitcoin as an alternative inflation insurance to their portfolios. It won't be the last company to include Bitcoin as a strategic reserve asset.
This article is based on the free online Bitcoin course and the many different articles about the development of the world of crypto finance. This information can be found on the bestebank.org. The article was written by Luuk Soons, the editor-in-chief of this in-depth bitcoin crypto knowledge base.
Disclaimer: This article on Bitcoin and gold is for educational purposes only. It is not investment advice.
