The Consequences Of MicroStrategy’s $250 Million Bitcoin Buy
Bitcoin is the latest investment vehicle. So why is MicroStrategy investing? Get to know the facts right.
Get To Know The Facts Right From Microstrategy
It says a lot about how the world has changed when a publicly owned company decides to invest about $250 million in an asset that was widely attacked more than a decade ago. It was observed that for the company’s investors, there are reasons and the timing of MicroStrategy’s bitcoin incursion that could not have come at a better time.
Telling the story of a changing world are the constant reminders about the waning fortunes of the US dollar on one hand and the growing recognition of bitcoin on the other hand.
The Changing Environment
Than it has done in more than four decades, to illustrate this, it was reported that the US Federal Reserve has printed more money in two months. It cannot mean to be business as usual with such an unprecedented feat. To this new normal there has to be a response.
Another important signal is giving the green light for banks to offer cryptocurrency custody services, as similarly is the story of the Office of the Comptroller of the Currency (OCC). Here this signal reinforces the world has changed as also businesses need to embrace this. In this scenario, it was found that Brian Brooks, the OCC’s pro-fintech chief currency comptroller, in a recent interview is elucidating this point.
Ruling that bitcoin is a form of money was a US Court elsewhere. Potentially far-reaching are the implications of such a ruling.
It appears a much larger catalyst was needed to kick things off while such signals might make it seem obvious that companies need to invest in Bitcoin. To jolt companies into action unfortunately it had to take something on the scale of Covid-19. Ultimately leading to global financial markets crashing, the rapid spread of the virus set off a chain of extraordinary events.
Adding a new sense of urgency to the issue of embracing cryptocurrencies, is the inevitable response by governments around the world. The response by governments has been unprecedented whether it is the stimulus check or any other appropriately named welfare scheme. The hopes that the era of unbridled money creation ended with the 2008/9 financial crisis as such interventions extinguished.
The collapse of markets in March had alarmed investors meanwhile before governments intervened by pumping money. Showing just how vulnerable financial markets are in the carnage that saw stock markets like the NYSE suspending trades several times in a short space of time.
How Is Bitcoin A Better Inflation Hedge
It recovered and quite quickly too as bitcoin initially crashed alongside global financial markets. Realising it has a better chance of protecting funds against the inevitable inflation than fiat assets are those buying the digital asset.
Certain to cause inflation and value dilution is the unprecedented largesse by the US government. For MicroStrategy that something else needed to act as a hedge is bitcoin.
Remarking in an interview, George Ball, the former CEO at Prudential Financial said that there is no doubt that government aid in times like these is well-intentioned. Outweighing the positives in the medium to long term are the negative effects of such generosity seeming to have no limits.
Any addition of new money to that which is already in circulation is inflationary irrespective of the circumstances that justified the decision.
He is now encouraging investors to invest in bitcoin as Ball a former bitcoin basher knows this.
Showing it is growing is already the usual inflation indicator like the price of gold. To continue with this streak, many now expect the safe-haven commodity that has already touched new all-time highs.
Believing that bitcoin just like gold can protect wealth from bad economic policies are many people like executives at MicroStrategy does. Just like gold, bitcoin has a finite supply where their faith is premised. As the process of extracting or adding more bitcoin into circulation cannot be manipulated by them.
In the past, some have tried and even had some success before their luck ran out although gold cannot be counterfeited. So far with bitcoin, that possibility comes to be almost zero. For anyone to have that chance, the technologies behind bitcoin require massive resources
Bitcoin is now likened to a digital version of gold after more than ten years of proving itself. Prompting interest from unusual suitors like MicroStrategy, the Nasdaq listed billion-dollar business intelligence firm is the designation.
When MicroStrategy announced the acquisition of bitcoins worth $250 million, it had a clear plan standing to reason. Maximising the long term value of its shareholders comes to be their plan.
When compared with risks that are now associated with investing or storing wealth in fiat asset form only, there will be risks involved yes but to MicroStrategy these pale into insignificance.
Bitcoin comes to be a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash as put by the MicroStrategy CEO, Michael J. Saylor. Allowing corporations to limit exposure to fiat-based financial assets, bitcoin is such a unique asset.
So, Then What Is The Future Of Bitcoin Price
The effect that this has on the supply of the digital assets on the market is another interesting fact about MicroStrategy’s purchase of bitcoin. Microstrqategy’s purchase of bitcoin reduces supply as Mike Novogratz, a bitcoin bull noted during a conference call with analysts in August.
Speculators will have less influence on bitcoin prices going forward as the reduced supply means. A key concern for many potential investors, this helps to reduce bitcoin’s price volatility.
It means less and less bitcoin will be available on the market with growing evidence that more institutional investors in the mold of MicroStrategy are acquiring the digital asset. Dictating that the price will have to go up is the law of supply and demand.
Some might see MicroStrategy’s decision to invest in bitcoin as a gamble but in a few years, those looking back are sure to say this was a no brainer as an interesting point at present. Enjoying the first-mover advantage is bitcoin going mainstream as those from Mainstreet is going in early.
Many more corporations will follow and invest in bitcoin as their shareholders fare better in the post-Covid-19 era whereas MicroStrategy may be the first.