Chris’ note: As I highlighted yesterday, bitcoin has hit new highs on news that Tesla (TSLA) bought $1.5 billion of the cryptocurrency. It’s part of a wider trend of mass adoption by corporate America.
So today, you’ll hear from my colleague Nick Giambruno. Last August, he recommended shares in MicroStrategy (MSTR) to our Crisis Investing readers. It had just become the first big corporation to hold bitcoin on its balance sheet. Since then, MSTR is up 659%. And other corporations – including Tesla – have followed suit.
Below, Nick reveals how this will kick off a scramble for bitcoin. And he shows why now could be the last time to buy before prices go into hyperdrive.
“We just had the awful realization that we were sitting on top of a $500 million ice cube that’s melting.”
That’s a quote from Michael Saylor. He’s the CEO of MicroStrategy (MSTR). It’s a Nasdaq-listed software maker based out of Virginia with a market value of about $9.6 billion.
Saylor realized his company had a problem. It was sitting on $500 million in cash. And inflation was melting away nearly $50 million in buying power every year.
He knew he needed to do something. So he made a bold move…
Last August, he made MicroStrategy the first large publicly traded company to hold bitcoin (BTC) as its primary cash reserve asset.
Since then, he’s plugged $1.1 billion of the company’s balance sheet into bitcoin.
Saylor decided the best way to protect shareholders from the debasement of the company’s U.S. dollar cash was to swap it for bitcoin.
He didn’t intend to speculate or gamble. MicroStrategy didn’t need the bitcoins for its day-to-day operations. Instead, he chose bitcoin because it’s a superior store of value.
Saylor is keeping some U.S. dollars for operating expenses and sweeping the excess cash into bitcoin.
And so far, that’s working out well.
If MicroStrategy swapped its bitcoin reserves back into dollars now, it would get $3.3 billion… versus its $1.1 billion outlay.
That’s an unrealized profit of $2.2 billion… or roughly 38 times the company’s 2020 operating profits.
And as you’ll see today, MicroStrategy is only the beginning of a much wider adoption trend… that will eventually see governments and central banks jump into bitcoin, too.
But let’s start at the beginning…
After the MicroStrategy announcement last August, I showed paid-up Crisis Investing subscribers how it would trigger a scramble among other companies to secure the world’s hardest money…
And if you’ve been following this story, you’ll know that’s what happened.
After MicroStrategy, payments processor Square (SQ) said in October it had invested $50 million – or 1% of its total assets – in bitcoin. Square isn’t using bitcoin as part of its operations either. It’s a long-term holding.
Stone Ridge Asset Management is a $10 billion investment firm. Five days after Square’s move, it said it had bought more than $114 million of bitcoin as part of its cash reserve.
Later the same month, Mode Global Holdings (MODE.L), a publicly listed British financial technology company, said it was plugging its balance sheet into bitcoin. The company will invest up to 10% of its cash reserves into bitcoin to “protect investors’ assets from currency debasement.”
And yesterday, electric carmaker Tesla (TSLA) announced a $1.5 billion bitcoin buy. The company plans to use bitcoin as a cash reserve asset and also accept it as payment.
This is something I predicted at The Casey Report last November. As I wrote at the time…
Elon Musk, the CEO of Tesla, has posted some favorable comments about bitcoin on Twitter. He also seems to understand the dangers of rampant central bank money-printing.
These companies are figuring out what works best to store value. And they’re choosing bitcoin.
One thing you’ll notice is these companies aren’t buying any other cryptocurrency. It’s not a coincidence.
No other cryptocurrency comes even close to possessing bitcoin’s total resistance to inflation.
Here’s why…
An unalterable protocol governs the rate at which new bitcoins enter the supply (the bitcoin inflation rate).
And the rate decreases over time…
No other crypto is genuinely scarce, immutable, and decentralized.
All other cryptos have key players, insiders, and development teams that can potentially act like central banks. They can boost supply, or change the rules, if they choose to.
It’s a temptation humans will find impossible to resist. Eventually, it will happen.
Bitcoin takes humans out of the equation. It’s the only cryptocurrency not controlled by anyone. Nobody can get together and alter its supply or change the rules. They’re fixed for eternity.
No other asset – not even gold – comes near bitcoin’s inflation-resistant properties.
Right now, the annual rate of increase in the supply of above-ground gold is about 1.7%. Bitcoin has a similar inflation rate.
But unlike gold, the supply of new bitcoin gets cut in half every four years (a process known as the “halving,” or what I like to call “quantitative hardening”).
This goes on until we reach a hard cap of 21 million bitcoins.
In short, all other cryptocurrencies have the monetary properties of digital arcade tokens or frequent flyer miles. That’s why companies such as MicroStrategy, Square, and Tesla are putting bitcoin – and not any other cryptocurrencies – on their balance sheets.
We’re close to the corporate world jumping into bitcoin in a big way.
But what comes after that?
We’ll see central banks and governments jump in, too.
Much like how it took MicroStrategy to break the ice for the corporate world, others will quickly follow once the first country makes a big move.
The countries most likely to embrace bitcoin are the ones with the least to lose. Iran and Venezuela, for instance, are under crippling sanctions and are experiencing hyperinflation in their national currencies.
Iran is already making small moves into bitcoin. Recently, it became the first country to adopt bitcoin to pay for imports and as payment for exports. This allows Iran to bypass the U.S. financial system and sanctions.
Governments are getting involved in bitcoin “mining,” too.
That’s the process of providing essential computing power to the bitcoin network in exchange for earning newly issued bitcoins.
Kazakhstan is a former Soviet republic with access to abundant cheap energy. It recently got involved in bitcoin mining. As has Pakistan. Others are likely to follow soon.
It’s clear to me that corporations and governments are about to launch bitcoin to a whole other level.
I wouldn’t be surprised to see bitcoin exceed $100,000 when that happens.
You don’t need to be a publicly traded company, or a government, to get in on this.
Anyone reading this can plug their personal balance sheet into bitcoin.
I’ve said it before… but I’ll say it again. It doesn’t matter if you’re a doctor, plumber, freelancer, Uber driver… you too can sweep your excess dollar savings into bitcoin.
This allows you to front-run big corporations… and central banks… by going on a bitcoin standard yourself.
I hope more people do that. It’s a huge opportunity to profit, as bitcoin could potentially emerge as the world’s dominant form of money – what I call The Bitcoin Supremacy.
And if you want to learn more about bitcoin’s meteoric rise, make sure to check out the interview I recorded with Gold Newsletter. Watch it for free here.
Regards,
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Nick Giambruno
Chief Analyst, Casey Research