Discover some of the key reasons behind MicroStrategy’s decision to invest their treasury in bitcoin.
On 22nd January 2021, Michael Saylor, CEO at MicroStrategy, sat down with Laura Shin on the Unchained podcast to discuss his company’s recent decision to invest another 10 million dollars in bitcoin. He explained some of the factors surrounding this decision, how his company implemented their new treasury strategy and his views on the future of bitcoin.
In short, MicroStrategy only keeps a certain amount of working capital in US dollars and local currencies (typically about 50 million dollars) and all additional funds go into their treasury, which is then converted into bitcoin. On 22nd January 2021, MicroStrategy purchased another 10 million dollars worth of bitcoin, adding to the 2.3 billion dollars in bitcoin the company already owns.
What Led Up to MicroStrategy’s Investment Decision?
As Michael Saylor explained,
“I don’t think we’d be here if it wasn’t for the pandemic. It’s the events of March of 2020. I think that was a catalytic month. The K-shape recovery, the lockdown of Main Street and rapid recovery of Wall Street forced everyone to review their assumptions of the way the economy works.”
The jarring K-shape recovery caused Michael to question his beliefs about macroeconomics and take a closer look at our current, arguably outdated, economic models including asset classes, currency trading, currency devaluation and monetary inflation.
This investigation led him to Saifedean’s book, The Bitcoin Standard, and a better understanding of monetary expansion. Monetary expansion, asset inflation rates and the cost of capital have all been around 5.5% for the last decade, but during recent events, the cost of capital jumped to 25%. Michael realised that if the cost of capital remained higher than 15%, his company needed to take immediate action.
Around the same time, the IRS deemed bitcoin a property rather than a currency, which created an interesting opportunity for MicroStrategy.
Michael says how the events of 2020 meant they “had to come up with a treasury strategy. We were forced to by monetary circumstances, and bitcoin looked to me and to the company to be the most rational, highest quality, technically most perfected asset if your goal is to hedge yourself against monetary inflation.”
How MicroStrategy Implemented Their New Treasury Strategy
Every financial company has the goal of making money by holding or trading assets or using their balance sheet. MicroStrategy’s approach was no different. Their strategy would allow them to create value for shareholders and employees, improve brand recognition and ultimately drive revenue by selling more products.
At the same time as purchasing 250 million dollars worth of bitcoin, MicroStrategy also tendered to buy back 250 million dollars’ worth of stock. By creating a tender offer, they allowed shareholders who disagreed with the new treasury strategy to exit at a profit.
Most investors didn’t, which meant that MicroStrategy was left with excess cash of 175 million dollars, which they also invested in bitcoin.
During the tendering process, the company’s shareholder base had rotated as everyone who had disagreed with the strategy either sold during the tender period or sold into the tender, while investors who agreed stayed or bought stock.
MicroStrategy then decided to expand their scope by making bitcoin the primary treasury reserve asset without a cap and with more support amongst shareholders.
Welcoming the Dawn of Institutional Investments in Bitcoin
“The two greatest inventions of the human race are language and money.”
While MicroStrategy may have been one of the first to adopt a bitcoin-based strategy, they’re certainly not the last.
Michael views bitcoin as a technically superior asset class compared to fiat currencies, like the dollar, euro, peso, bolivar, and more traditional assets like stocks, bonds and gold. He argues bitcoin is superior to everything you could conceivably buy or use as a store of value.
Since bitcoin is a superior asset, Michael challenges the short-term thinking often seen in crypto traders and instead encourages companies to adopt a long-term perspective. He compares short-term thinking to travelling back to 1910 and asking people who are wiring their houses with electricity, when they’re going to turn off their electricity and convert back to horse and buggy as electricity is a scary, speculative thing.
Bitcoin, like electricity, isn’t a fad or bubble. As Michael says, bitcoin is the future especially for people in countries experiencing capital flight.
For people and companies in countries with volatile currencies like Venezuela, Nigeria, or Turkey, Bitcoin gives them another option, a safe haven, where they can move their money to avoid currency collapses or, in Michael’s words, participate in a rational capital flight as one currency collapses into a stronger, more superior, currency.
When this starts to happen with the dollar and the euro, the government will need to respond. As a result, price discovery and favourable interest rates will return for more traditional assets. Governments will also start to create rails allowing Bitcoin to be regulated, encouraging corporations to come on board.
Future Gazing: Changing the World with Bitcoin
When asked about some of the criticism against bitcoin, Michael responds by saying that these people “miss the bigger picture.”
Bitcoin is the first monetary network in human history that makes it a million times more efficient to move money worldwide. Bitcoin, as a technically superior asset, is growing and spreading and, as Michael argues, there’s no reason to think this won’t continue.
Michael argues that the world needs one reasonably decentralised monetary network which uses open technology protocol and everybody agrees on. We then need institutions, corporations, and individuals to embrace it.
While there will certainly be good and bad days, companies that believe in the future of a digital monetary network should adopt a more long-term approach and do things because they’re the right thing to do. The world needs Bitcoin, just like it needs electricity or running water.
Companies who believe the world will benefit from a “thermodynamically sound monetary network” will build it into their balance sheet and P&L. These brands will evangelise bitcoin and help educate the world on its value.
If embraced, bitcoin could change the world for the better: people from countries with collapsing currencies would have a place to go, price discovery would return to stocks, bonds and real estate markets and politicians would need to treat people better.
As Michael says “the best thing we can all do is find a way to spread this monetary network to the four corners of the Earth.” Believe in the future, fight through the difficult times and hold out for the long-run.
Since investing in bitcoin, MicroStrategy has doubled its investment bringing the company’s treasury to $1,300,000,000. MicroStrategy stock price has also gone from $123 the day before the announcement to roughly $575 on 22nd January 2021.
MicroStrategy recently hosted their Bitcoin for Corporations event, which could be considered the first corporate, open-source, bitcoin summit dedicated to educating corporations interested in investing in bitcoin as a treasury asset.
Attached to MicroStrategy’s World 2021 Virtual event, its corporate Bitcoin Summit had over 8,000 attendees from nearly 7,000 unique enterprises. A testament to the narrative that corporates are interested in allocating treasury reserves or making investments in bitcoin in 2021.