MicroStrategy recently shared its new strategy of diversifying its portfolio with $250 million worth of bitcoin.
“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders,” — Michael J. Saylor, CEO, MicroStrategy Incorporated.
These words belong to the CEO of one of the most valuable business analytics firms in the world.
MicroStrategy bought 21,454 bitcoins at an aggregate purchase price of $250 Million, including fees and expenses (MicroStrategy, 2020). Such a massive amount of investment makes Bitcoin the primary treasury reserve asset for the company.
The company declared the decision as a carefully considered one in its press release on August 11th, 2020. They also mentioned that although many factors supported their decision, the main drives behind the decision were the following:
The economic and public health crisis precipitated by COVID-19
Unprecedented government fiscal stimulus measures including quantitative easing adopted around the world
Global political and economic uncertainty.
The economic and public health crisis
The 30-year-old software company had a massive pile of cash when the Covid-19 crisis has hit the world hard. During this period, which is still going on, many companies went out of business or survived yet, holding on at the edge of a cliff.
However, even the companies that have survived the initial wave of the crisis may face severe long term impacts.
I‘ve written before about how the wealth has shifted from traditional industry stocks to tech stocks, from growth startups to rich in cash giants and from offline to online businesses since the beginning of the Covid-19 crisis.
During such significant paradigm shifts, companies would like to protect themselves from economic instability and choose to store the value they hold in assets that are safe in their eyes.
Therefore, MicroStrategy’s choice of Bitcoin as insurance to the Covid-19 crisis, tells us a lot about the trust the company has for the digital asset.
Government fiscal stimulus measures
Lots of governments have announced fiscal stimulus measures, sometimes in the form of direct payments to citizens, or as interest-free loans. Some central banks even purchased corporate bonds and stocks to rescue almost bankrupt companies.
These measures led the economies to have artificial growth in the stock markets. As the stock markets are one of the key indicators to see how an economy is doing, it gave people a false sense of optimism.
According to McKinsey’s latest report, governments have provided $10 trillion aid to support their economies, and it’s counting.
The economic bubble markets have seen during the last couple of months make companies quite nervous about the future, since all bubbles in the past were followed by a major crash soon after. As it’s impossible to time such a crush precisely, the economy has become a ticking time bomb with no countdown display on it.
Such obscurity may have fueled MicroStrategy’s decision to make a massive amount of Bitcoin purchase, and it shows that the company excepts uncorrelated move between Bitcoin and the traditional stock market.
Global political and economic uncertainty
Although I’ve briefly mentioned the upcoming global uncertainty, it’s essential to address this aspect separately as the company covered it in their press release.
The reason for such an exclusive emphasis is showing that the company is getting ready for something that they don’t even fully grasp. Such a massive pandemic has never hit the modern, fully connected, globalized world before. Therefore, no one knows for sure, how long the aftershock will leave a mark on the daily purchasing habits and consumer behavior.
MicroStrategy is not alone
MicroStrategy is not first and seems like not the last business to choose Bitcoin as a treasury reserve asset. Lots of blockchain businesses have been holding their cash surplus in Bitcoin rather than cash. However, this is the first time a non-blockchain related multinational company is publicly declaring such a large purchase.
MicroStrategy’s move seems to have inspired some small businesses already. A restaurant chain in Canada followed a similar strategy a week after and converted its entire cash reserve to Bitcoin.
Final thoughts
Business life is full of risks and companies’ one of the main goal is to survive turbulent times.
Covid-19 is one of those turbulences that has caused an unprecedented economic and public health crisis.
Rather than looking for long term solutions, most of the governments responded with panic and have chosen to inject as much money as possible to the market through government financial stimulus measures, without thinking what a bigger bubble they may have created.
Considering all options, some companies started seeing the future of global political and economic unpredictable.
All considered, some companies felt the need to protect their assets. That’s when Bitcoin as an excellent track record of 11 years of providing secure and fast transactions, holding the full track record with no exemption, and kept increasing its value significantly, emerged just in time to provide a safe haven to those in fear.
Not all companies will follow the footsteps of MicroStrategy, and they will adopt different strategies. Some will invest in commodities like gold and silver, and some others will buy back their own shares with the excess cash they hold.
Only if the expected doomsday arrives and brings a multi-year recession to the global economy, extreme inflation, or deflation, sharp declines in local currency valuations, we’ll then know who has chosen the best store of value.
This article is originally published on Medium!
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Disclaimer: This article is provided for informational or educational purposes only and is not any form of individualized advice. Use this information at your own risk.
