MicroStrategy is to Bitcoin as Roger Bannister is to the 4-Minute Mile
Once the barrier is broken, the flood gates open
Recently, and without warning, a piece of news hit the financial reporting outlets without fanfare or fuss and caused a collective gasp among the cryptocurrency community.
A Nasdaq-listed company, Microstrategy (MSTR) had nonchalantly announced that it had purchased 21,454 bitcoin for $250 million, including all fees and expenses.
From an outsider’s perspective, it did it as casually and calmly as someone getting in from work and announcing that they’d got some gas on the way home. It could easily have been preceded by the words “Oh, by the way …”
I’d heard of Microstrategy through reputation of course, but other than the fact I’d seen it on the Nasdaq and its logo looked a little like Microsoft’s did in the nineties, I knew little about the company itself.
It’s no coincidence, of course, that the first company to secure significant amounts of bitcoin for its “treasury reserve strategy” is a company entirely dedicated to forward-thinking research and business intelligence. In actual fact, it makes perfect sense that it would be.
These are very sharp people who have access to some of the best analytical tools in the industry. In fact, they created a lot of them, and many of the Fortune Global 500 now use those very same tools for their own applications.
So, if a future-focused company whose work is based on modelling likely outcomes for the future using cutting-edge data suddenly buys a lot of bitcoin, what does that tell us about what’s coming next?
Cool as a Cucumber
Micheal J Saylor, CEO of MicroStrategy, used deliberate language in his company's press release that made the announcement on Aug. 11, 2020.
You can’t help feeling he’s the cool guy who’s walked into a crisis somewhere, slowly removed his shades and causally announced what the rescue plan in such a way that everyone immediately listens and follows.
This statement, for example, is what many Bitcoiners have been purporting for some time:
“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”
He goes on to explain that the current financial landscape is “creating long-term risk for our corporate treasury program” and singles out, in particular, quantitative easing and political uncertainly as key reasons for that thinking.
None of these statements, in and of themselves, are a surprise for economists and analysts like myself, who work on or follow this stuff on a daily basis. What is more interesting is that out of all the asset classes available for the company to purchase, they chose bitcoin.
The press release implies that consideration was given to alternatives, but they seem to have been dismissed outright early on. Saylor, still as calm and collected as ever, simply states the following:
“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 fueled the rise of so many category killers in the modern era.”
It’s nothing short of bold, delivered in a mater-of-fact fashion reminiscent of a judge handing down a verdict for a long and tricky case. This is a man who is clearly sold on his convictions.
And then there’s the investment level itself. This wasn’t a spare few thousand earmarked for a new, fancy office printer that they decide they could do without for a while, this was an investment of a quarter of a billion dollars of funds in a publicly traded company, funds for which they know they will have to answer for shareholders.
This was planned, processed and delivered in meticulous detail. This was deliberate and unapologetic.
So, what’s next?
Like anything that seems impossible, it only is until someone does it.
When, for example, Roger Bannister publicly and spectacularly broke the belief that a human being could not run a mile in less than four minutes in 1954, it was not the first and only time it has happened since. Now it is common, almost routine, and there is certainly no fanfare when it is achieved.
In my view, the same scenario is likely to play out with this situation. It’s always been possible for any company to buy bitcoin or, for that matter any other asset, and add it to their balance sheet, but the question is, who would go first? Who would risk putting their head above the parapet? What if they were wrong?
Yet if you were to sit down and pick a company to make that first step — to break that four-minute belief if you will — it’s so obvious that it would be this one. At least, like most things, it is in retrospect.
It has credibility, being both successful and publicly listed, and it can’t be accused of not knowing what it’s doing, since it’s entire business model is based on understanding what’s coming next. It’s a hard proposition to argue against, and you’d be a fool to try.
So, as sudden as MicroStrategy’s announcement appeared to be, you can bet it started a flurry of conversations in board rooms across the civilized world in organisations of all sizes.
Suddenly, buying bitcoin is a well-thought-out strategic play, rather than a slightly mad outside bet. Buying bitcoin is cool. Buying bitcoin is sensible. But also, there will be those asking “what the hell is bitcoin anyway? And why are WE not buying it?”
And while many of these companies may not have the funds of this scale to risk, even with MicroStrategy’s vicarious endorsement, many of them will be holding cash reserves of some sort.
These reserves are already devaluing at a faster rate than any point in recent history and, since a company is legally obliged to protect their shareholders’ positions, it’s an issue that must be addressed sooner rather than later, even if it’s ultimately via another asset.
But in any case, large or small, these companies have just been given the green light to hold bitcoin, or, at the very least, seriously explore doing so.
It is possible that some of them will find their way to do just that? Definitely. Is it likely? Absolutely.
And given that’s the case, this quietly delivered — yet extremely confident — statement from MicroStrategy is likely only the start of the what will come next.
Just as the four-minute mile became normalized after 1954, so will the corporate holding of bitcoin after 2020.
To quote Ernest Hemingway, it will take place “Gradually, then suddenly.”
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There is a extended podcast version of this story which includes an update on what Microstrategy did next with their Bitcoin strategy, available for free here:
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Disclosure: The author of this opinion piece has been heavily involved with bitcoin for several years and holds a substantial cryptocurrency portfolio, including bitcoin. He also has a mining operation running the SHA-256 algorithm based in Siberia and is a published author on the subject of promoting the understanding of cryptocurrency. Jason is an analyst at Quantum Economics. This article was first published on voice.com
Disclaimer: Investing in any asset class is risky. The above should not be taken as financial advice, nor construed as so. Always do your own research before investing or consult with a professional financial planner.