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Some decisions need the passage of time to show if they were foolish or enlightened. One company in the USA has made a massive bet that can only be judged by history.
History is the ultimate determiner of what is enlightened thinking versus just plain stupid. A lot of decisions cannot be judged on their immediate implementation as it takes the passage of time to demonstrate the outcome.
One company in the United States has just made such a decision.
MicroStrategy Incorporated has decided that holding cash reserves is passé and they have pumped $250 million of their spare cash into Bitcoin! That's a total of 21,454 coins!
It is either a genius move or a dumb bet. Frankly I don't know the answer either but time will tell.
The CEO of MicroStrategy, Michael Saylor explained the rationale in a public statement:
“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximise long-term value for our shareholders. This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.
Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognised Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.
MicroStrategy spent months deliberating to determine our capital allocation strategy. Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program ― risks that should be addressed proactively. Those macro factors include, among other things, the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty.
We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.”
This is big news as this company isn't a spruiker for crypto currencies, nor is their business related to blockchain technology. They have simply assessed that the risk of fiat currency devaluation is greater than the risk attached to Bitcoin.
With both USD cash holdings and BTC offering next to no interest payments they are forgoing very little. However, the volatility of BTC will be much higher for their balance sheet. In their favour is the fact that BTC are finite in number and US dollars are now being printed like there is no tomorrow.
Maybe that's the point. Our entire financial system is operating like their are no serious consequences for the current trajectory. That's always dangerous.
The CEO went on to say:
“We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility, and community ethos of Bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value.
Bitcoin is digital gold – harder, stronger, faster, and smarter than any money that has preceded it. We expect its value to accrete with advances in technology, expanding adoption, and the network effect that has fuelled the rise of so many category killers in the modern era.”
That's a similar assessment to the one I made some weeks ago when I bought into the crypto scene. It is a strategic bet based on the current economic conditions and possible outcomes with an attractive risk/reward ratio.
Unlike the CEO of MicroStrategy I didn't go all in with my purchase but the fact that the board of a public company has committed such an amount to this digital gold is a bold move.
Whether it is a fools gold or a fantastic investment remains to be seen.
As always do your own research but if you are interested in investing in Bitcoin or other crypto currencies, the people at Easy Crypto are great to deal with.
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