> Why the negative reaction? Because this time the Bitcoin would be bought with other people's money, instead of the cash reserves already on MicroStrategy's balance sheet.
Why not hold TIPS[1], or a diverse basket of securities, or invest the money in something productive? Is it a good thing if sitting on a large cash pile is rewarded?
Note that TIPS currently have a negative yield for all durations. So even though they protect you against potential inflation as measured by CPI, there's still a cost.
As of 2020 Bitcoin can almost-instantly be used as an interest bearing and yield producing asset, which is what "productive" means in this context.
There are both centralized custodial options as well as decentralized permissionless but custodial options, as well as decentralized permissionless noncustodial options. And yes, the yield is risk adjusted.
I'm not sure if you are being sarcastic. If you have been investing for a while, you'll know that the official numbers are a scam. TIPS pay less than 0.1% yearly. If you have been paying your bills, shopping for a house, or buying new stuff; you should know that real inflation is probably in the 5-25% range depending where you live.
Heck, even in this crisis house prices can't get down. The world economy is inflating like crazy.
Sure they can invest in something more productive but the whole point of having reserves is to be more robust to negative changes e.g: COVID or jump on new opportunities (some company goes up for sale).
Because the inflation definition is changing all the time (look at shadowstats). The CEO likes yachts and houses on the beach, and how he describes it: inflation baskets contain what you don't care about, and miss the scarce assets that you really want.
You sound like you think Bitcoin will only go up. The last 4 years have shown that to be WILDLY incorrect. Bitcoin price history has shown 0 correlation to the market or macroeconomic conditions.
Gold, as well, is not a safe haven either. The US Government keeps printing money, yet gold is nowhere near it's all-time high (adjusted for inflation).
You shouldn't offer these statements as inevitabilities when history has shown them to be completely wrong.
I'm just reasoning why it will happen. Macro markets do not always react fast to these kind of trends.
I agree with your description of the present and close past, thus calling an imminent bull market.
The more time this present situation holds, the bigger is the buying pressure.
I'm guessing you have a computer tech background and still don't share my view: imagine all the macro-investors not having this knowledge. They can't predict magic-internet-money eating their lunch.
Cool thing about free markets: they find out the correct solution out of the greed and collective inteligence of the group. <3
"Zero correlation to the markets" is one of the things that makes Bitcoin desirable. Diversifying your portfolio is all about having things that do not move in the same direction at the same time.
It is important to have a variety of uncorrelated assets, but in the case of Bitcoin it's still quite volatile, not always for clearly apparent reasons. It seems to be developing a place for itself, but I think it still needs a few years of less volatility for it carve out the niche many people want it to have.
A lot of things were correlated then that aren’t always / normally. Bonds, stocks, gold... basically everything was sold to move into dollars. That doesn’t mean that those assets are all correlated over the long haul.
This is the thing I don't understand. Why should savings automatically hold value or appreciate in value? If I invest my money in something risky, I get a reward for taking the risk. My reward comes from the value created by the things I invested in, so if I invest in a business which succeeds, some of that success comes back to me. If I don't make any investments, but keep my cash under the mattress instead, I lose out.
If I buy Bitcoin, what value-creating activity occurs that pays for my reward?
> If I buy Bitcoin, what value-creating activity occurs that pays for my reward?
None. But then:
1. You reasoning applies exactly to gold. Yet, people keep buying it. It's call supply and demand. Demand doesn't have to be grounded in anything rational. If it exists and the supply is limited, the price will go up.
2. Bitcoin has never been about value creation. It's about *preserving* value, something the USD has been historically terrible at [1]
About half of gold is used to make jewelry, and 10% is used in industry [per wikipedia]. If the demand for the remaining portion that is purchased as investments/speculation fell to zero, gold would still have value. If bitcoin's investment/speculation interest fell to zero, the price would also fall to zero (or close to it) - it doesnt really do anything else.
Jewelry, a really useful thing if there ever was one.
You're missing the point here, like all acolytes of the "intrinsic value" cult.
There is no such thing as intrinsic value, as much as most people like to sing themselves that lullaby.
There's is just one thing: supply and demand.
Where demand comes from, whether it is rational or irrational is completely irrelevant to the equation.
People want gold (who knows why, whether it's rational or not, and who cares), the supply is scarce (even though it's not limited) therefore it has value.
People want Bitcoin, the supply is finite, therefore it has value.
Add in the fact that it has some nice properties that gold doesn't have (e.g. easy to move and very hard to confiscate unless you're dumb enough to disclose your holdings) ... you get the price we have today.
People need air, therefore demand is strong. However, supply is - for all intent and purposes - infinite (a bit like the USD), therefore it has no value.
>Jewelry, a really useful thing if there ever was one.
If people didn't care about their looks everyone would use plain color clothes. Gold jewelry also works as a status symbol. It definitely performs some utility that way.
If gold had only speculative demand it would be long forgotten by now.
Nothing like that for bitcoin, it's purely speculative demand and to realize a profit you need another speculator to sell to, and the situation repeats. It's also inflationary and requires billions to run, generating losses, which mathematically guarantess that average bitcoin has negative EV. How do you know when to sell?
So far it only exists during the longest bull market in history, leaving many people and companies with a lot of paper wealth they don't know what to do with. If that situation ever ends, forcing people and companies to spend their financial reserves just to survive, purely speculative bubbles like bitcoin are going to collapse the most - as buyers disappear and many sellers appear.
But that doesn't answer the question. If I buy shares in a business, I am helping that business to grow, and I am rewarded if it does. If I buy Bitcoin, nothing changes except that the price of Bitcoin goes up.
Basic economic rules are not designed but result of trade.
If you buy in the present what others want to own in the future, you create value for yourself as the price of the asset rises.
You can also understand Bitcoin as a business. Assuming it's a better form of money, it allows any agent of the system to better store or transfer money.
By owning Bitcoin you are assuming a risk, but also making the total value locked (TVL) bigger, through making the token less volatile. That helps. :-)
Savers desire to not lose value. This is why people who save naturally tend towards "harder" money, or money that doesn't lose value. So there is nothing that requires savings not to lose value, other than savers who desire this property and park their savings in assets that are closest to this ideal.
I understand why it is desirable! But why is Bitcoin better for this than, say, an index fund?
Even in the case of an index fund, you are ultimately buying shares of businesses which decreases the cost of financing for those businesses and helps them to grow. It's not as impactful as an angel investment in a startup, but it still means that your outcome is linked to successful economic activity that you helped to finance. In the case of Bitcoin, no such activity takes place, so where is the reward coming from?
They are not the same thing. Investing in an index fund is a bet that over your holding period your rate of return will be positive for the companies invested in. But recessions happen, and if you don’t want exposure to recessions then you don’t want an index fund.
Furthermore it is non-trivial for global citizens, especially those in corrupt and financially moronic countries like Argentina, Turkey, and Lebanon to get access to a US index fund. Bitcoin is global and apps exist for every platform and country to help people buy it.
One way to look at Bitcoin is that it is an improved version of gold. By your logic, why would anyone want to hold gold? But many do. Bitcoin is an internet-native digital asset that acts like gold but has many interesting properties in how it is custodies and transmitted that make it different if not superior to gold.
Clearly what someone doesn’t want to hold is cash - whether USD and especially fiat currency in mismanaged countries like Venezuela. In the USA it is much easier to avoid holding cash than in other countries.
The amount of human work possible is limited and so are raw material.
By investing you are giving somebody money that when used will make access to those bought resources more expensive to other agents.
That is why in the perfect system you don't want to put "all money to work". You want the perfect balance between investing and saving.
Savings allow you to preserve your value into the future till you detect a worthy investing opportunity.
Sadly enough, the present world has lost most important tools to save and preserve value: money and government bonds. Thus obliging all agents with value into risky investing instead of safely save for the future.
The situation explains why gold and Bitcoin soared last decade: economic agents need some store of value to park their savings.
"Bitcoin is a non-sovereign, hard-capped supply, global, immutable, decentralized digital store of value. It’s an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally."
I think it's not uncommon for large corps to keep assets in other currencies for a variety of reasons. In the case of BTC though, the "melt over time" I'm not sure quite applies yet. It's still be fairly volatile, and if you're leveraged to make those purchases then there could be a risk of the loans getting called in if the asset plummets. I'm not anti BTC, but I think it needs a few years of stability before it represents safe asset in that respect.
Secondary is that in order for me to really consider it "money" rather than an asset, I think the ability to spend it as such needs to improve. Until then it strikes me as little different than any other security that you need to sell to convert into negotiable currency. Though I don't know, maybe that's a distinction without (much of) a difference.
Not really. I have personal savings that helped me a lot this year.
If you want to see what happens when the treasury is empty, just look at how hard it was for Tesla to survive the Model 3 launch: they were heavily shorted, and oil companies attacked Tesla on every front they could to destroy it.
Now that Tesla has enough treasury to survive a stock crash (and a little bit profitable), shorts went away.
Btw MicroStrategy was attacked the same way and its stock crashed by 95% in the past.
Also just look at 2020 how many businesses that didn't have treasury went bankrupt.
When you value the company. One the things investors do, is discount cash or cash like equivalents from the value of the company anyway. What's left is genuine value.
Exactly - Bitcoin is not a safe place to store cash as others in this thread are arguing. It's certainly not anywhere close to as safe as the US Dollar. It's well within possibility that Bitcoin will drop 80% over the next 6 months.
It's well within possibility that Bitcoin will drop 80% over the next 6 months.
Interest rates are close to zero; including inflation, if Saylor kept the company's treasury in cash (and cash equivalents), he's be losing money.
1. Not when corporations and billionaires are investing in it and are planning to hold it for a long time.
2. The dollar has lost 80% of its value in the last 80-90 years. And with no end in sight of the Fed printing trillions of dollars, the dollar is being debased as we speak.
3. The dollar may not be the global reserve currency for much longer; the US is only about 20% of global GDP [1].
I feel like I had these same discussions in 2017 when Bitcoin enthusiasts were saying it could only keep going up. New justifications for it to keep rising don’t outweigh the reality that no one knows what the future price will be.
And regarding Saylor, you say that holding it in cash is literally losing money - if Bitcoin drops 80% again, he’ll be losing a LOT more than the 1% he’d lose if he had cash.
I feel like I had these same discussions in 2017 when Bitcoin enthusiasts were saying it could only keep going up.
That was before institutional money and billionaires took it seriously. That was also before a global pandemic that has required virtually all central banks to inject trillions of dollars into the global economy to keep it afloat, inflating fiat currencies.
Saylor knows exactly what he's doing—a speculative attack [1]—when someone uses a shitty currency to acquire a much better currency or asset.
You also completely ignore that Bitcoin might be overtaken by another competitor in this area. Altavista and Myspace didn't win either.
Think about it… it's highly unlikely that something else could achieve the network effects, mindshare, hashing power and all of the rest of bitcoin's attributes right now. In the early days, when bitcoin barely had any value at all, it would have been possible. But having gone from $0 to $350+ billion in market cap, it's too late.
Quoting Travis Kling (@Travis_Kling):
"Bitcoin is a non-sovereign, hard-capped supply, global, immutable, decentralized digital store of value. It’s an insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally."
The British pound sterling, the French franc, the Dutch guilder, they all were reserve currencies but they got overtaken.
Usually not because their inherent values changed but because the environment changed and another, more suitable currency emerged. That's exactly the narrative that people push about Bitcoin's advantages over the US dollar.
But because things happen a lot faster in crypto than they do in traditional finance, I wouldn't bet on "Bitcoin can't ever be overtaken".
This is the problem with the Bitcoin enthusiasts - they think they can predict the future price with near certainty. You don’t think that rosy picture of BTC is held by thousands of others and already baked into the share price? “Highly unlikely” only describes Bitcoin’s potential as a store of value.
If your investing horizon is any amount of time, Bitcoin is not for you. Bitcoin is not an investment, it’s a pure speculation. As another comment perfectly summed it up, lottery tickets are not an investment.
A change in stock to flow is not "priced in". And gold is also a speculation, it still works/worked. Social value networks are quite sticky and tend to get stronger over time.
Its also been around for 3000 years and is far past its price discovery phase. Aside from that you dont hold gold in perpetuity, its for certain several year stretches and certain decades. I hold none just because I think btc challenges it (which is also the view of JP Morgan's latest opinion so in decent company).
Second comment here: Long cyclical runs can be timed. For instance golds decade long rip prior to the decline was due to etf introductions.
And no I dont think you do “got it”. You dont hold anything in existence forever. If youre not comfortable making shifts every few years (or whatever) and having to actually do some thinking from time to time then investing isnt for you.
I actually disagree with you. With bonds you are virtually guaranteed to lose value over time as real yields are negative (against inflation). Thats a risk. Getting poor slowly and not keeping up with other rising assets is a threat to wealth even when you might feel safe from low vol. With bitcoin the long term moving average is up despite short term volatility and network effects are quite difficult to overcome. Bitcoin is a good holding if you plan to lock it up for 10 years vs bonds.
It was crazy to think this 5 years ago, now its less crazy, and tomorrow it will be normal. That my thesis and its also why billionaires are pouring in right now. If you asked me to hold a bitcoin vs a bond equivalent for long term the decision is easy for me especially knowing that global debt monetization is essentially a necessity at this point.
