MicroStrategy, the renowned business intelligence software company, has consistently expanded its bitcoin portfolio since 2020. The company’s resolute support and affinity for bitcoin (BTC) have garnered both admiration and criticism, raising the question: does MicroStrategy’s expanding bitcoin holdings bode well or ill for the crypto market?
How Much Bitcoin Does MicroStrategy Own?
In 2020, MicroStrategy initiated its foray into bitcoin by acquiring 21,454 BTC, amounting to approximately $250 million, as part of its treasury reserve strategy. Initially met with skepticism, financial industry analysts sought to evaluate the long-term viability of cryptocurrency as a store of value.
Since then, MicroStrategy has continued to augment its crypto holdings. As of April 5th this year, the company possessed a total of 140,000 bitcoins, which constitutes about 0.67% of the total BTC supply. These assets were procured for $4.17 billion at an average price of $29,803 per bitcoin.
Why Does MicroStrategy Invest in Bitcoin?
Upon entering the crypto market, MicroStrategy issued a statement affirming bitcoin as a legitimate investment asset. It further posited that BTC could surpass cash, thereby becoming the core asset in its treasury reserve. Additionally, the report predicted a gradual depreciation of the United States dollar, rendering it an inadequate store of value. Recent events, such as the banking crisis, escalating interest rates, and inflation, have caused the USD to weaken significantly. In contrast, bitcoin demonstrated resilience amid the turmoil, recovering and surpassing the $30,000 threshold for the first time since June 2022.
According to MicroStrategy executive Michael Saylor, traditional forms of commodity money are expensive to maintain, fragile, slow, and burdened with exorbitant fees. Bitcoin, on the other hand, possesses digital properties and scarcity, with a maximum production limit of 21 million coins. Consequently, its value is expected to appreciate over time due to increased demand.
MicroStrategy’s Portfolio: Unveiling Opportunities
MicroStrategy’s persistent bitcoin acquisitions not only lend credibility to the asset but also pave the way for other prominent companies to follow suit. When more companies adopt similar investment strategies, financial decisions pertaining to cryptocurrency become more straightforward.
Given the substantial investments made by mainstream companies, it becomes increasingly challenging to ban bitcoin outright. In its infancy, back in 2013, when bitcoin had just started gaining attention from investors, a ban may have been more feasible. However, with multiple companies holding bitcoin and its price steadily rising over time, governments face mounting obstacles in imposing bans. Moreover, when an asset is included in the books of publicly-traded companies like MicroStrategy, governmental attempts to enforce restrictions become even more arduous. As governments procrastinate in formulating regulations regarding cryptocurrencies and adoption continues to grow, the feasibility of issuing bans diminishes.
Furthermore, MicroStrategy’s purchases exert an influence on the price of BTC. The act of purchasing 1/900th of an asset’s supply by an investor leads to short-term price increases. Simultaneously, MicroStrategy’s long-term investment approach, coupled with the appreciation of BTC’s price and the influx of new buyers, results in reduced bitcoin supply and heightened demand, subsequently driving prices upward.
MicroStrategy’s Decision: A Potential Double-Edged Sword
Hal Press, the founder of North Rock Digital, criticized MicroStrategy’s decision to invest in bitcoin, deeming the business model unsustainable and recommending the company sell its bitcoin holdings. However, he acknowledged that such a sale would not transpire in the immediate future and might take several years. Others argue that following Press’ critique, MicroStrategy should have diversified its investments by considering Ethereum. A comparative analysis reveals that the company’s purchases would have yielded 3.68 million ETH valued at $6.623 billion, compared to BTC’s $3.746 billion.
MicroStrategy’s investment in bitcoin has proved immensely profitable, especially during the cryptocurrency’s record highs in late 2020 and early 2021, as well as its recent resurgence above the $30,000 mark. However, the company faced substantial criticism when prices plummeted significantly during the prolonged crypto winter. Investors and analysts have expressed concerns about investing such a substantial amount in a highly volatile and speculative asset.
The idea of taking a software company and levering it to the gills to run a “Bitcoin acquisition strategy” is so comically stupid it’s actually quite funny. Will be so obvious in hindsight. https://t.co/63qjKVvYAv
— Hal Press (@NorthRockLP) April 7, 2023
Michael Saylor’s Bullish Stance on Bitcoin
Saylor, a vocal advocate for bitcoin, has been a driving force behind MicroStrategy’s BTC investments. He consistently argues that bitcoin possesses the potential to outperform traditional assets like stocks and gold. In September 2020, he tweeted about bitcoin’s exponential growth, emphasizing its speed, strength, and intelligence.
Saylor maintains a steadfast position against selling any bitcoin holdings in the foreseeable future. However, towards the end of last year, the company sold its bitcoin holdings for “tax benefits” and subsequently acquired 2,500 BTC.
In a recent podcast appearance, Saylor reiterated his faith in bitcoin, emphasizing that if people lose trust in banks, they lose faith in the currency and subsequently in the government. According to Saylor, bitcoin stands as a trustworthy alternative.
Furthermore, he highlighted the depreciation of wealth when held in a bank account: on average, 7% is lost yearly in good economic conditions and 15% during poor economic periods. Over a span of 90 years, wealth stored in USD erodes by 99%.
In conclusion
MicroStrategy’s expanding bitcoin holdings have ignited substantial debate within the crypto community. While the company’s long-term investment approach has proven lucrative, critics argue that its heavy reliance on a volatile asset exposes it to significant risks. Nevertheless, MicroStrategy’s unwavering support for bitcoin continues, driven by Michael Saylor’s bullish outlook and the potential for outperformance compared to traditional assets.
