Bitcoin: Microstrategy´s Michael Saylor unchained

The thinking and the strategies behind Saylor´s bold bitcoin investing.

Is Bitcoin a speculative asset?:

“It´s always labeled a speculation if you do not understand the science behind something. Argentinians do not buy bitcoin for speculation”.

Saylor hints here that the need for Bitcoin is caused by monetary debasement. Whether this happens in the US, Europe or Argentina the difference is only the time frame, the scale of it and the different level of awareness among the population. Therefore he does not see Bitcoin as a speculation, rather a very much needed tool to safeguard purchasing power from monetary inflation.

Bitcoin is the hardest and most salable money:

Saylor made an interesting analogy with engineering and gold when was the hardest form of money and it enabled the development of civilization. Like the hardest materials enable the strongest and tallest of constructions, the hardest money should lay the foundations for human development. Cathedrals and objects of art which took many years to complete could be built because the money that financed it did not lose value across time. Gold was the money that funded all such infrastructure in history and was the most salable form of money at the time. By the same token bitcoin is today the most salable form of money, the hardest money around. And it will enable the very same infrastructure development that gold did in the renaissance or during the gold standard from 1800 until 1914. In the future, borrowing against a hard asset such as bitcoin, will enable just that. And he mentioned as an example Jack Dorsey´s 500 bitcoin endowment trust to finance Bitcoin development in Africa. Hard money lowers time preference which is the key to investing in the future.

Bitcoin is the fastest money:

Saylor said that it is hard to conceive today what can be done with a high frequency, fast money like bitcoin. The comparison and contrast here cannot be done with fiat money because even if it is very fast, fiat money does not have finality of settlement (of course except for public enemy nr.1 the cash). So we should rather compare and contrast Bitcoin with gold because both have settlement finality. Try moving 1 billion worth of gold and 1 billion worth of bitcoin across time and space and you have the answer. The important point he makes is that high frequency money will enable a whole new different infrastructure and a totally new range of services yet unheard of. Think about flash loans: hours up to a few months.

US Army energy footprint to back up the US$ reserve status

Bitcoin energy footprint:

To summarize Saylor´s view here, one must contrast the fiat standard footprint with the Bitcoin footprint and consider both their externalities in order to get the real picture. Bitcoin´s energy footprint is totally transparent, 100% accountable and does not have substantial externalities. Its energy footprint is the mining rig. Full stop. As big as this may seem it is a tiny fraction of the energy footprint of the whole fiat system and its externalities. This system is based on a massive infrastructure which includes thousands of banks around the world, thousands of finance related service businesses, tens of millions of people employed in the sector and the huge US military machine to back stop the dollar reserve currency. Externalities include the debasement of fiat currencies and the damages that this causes to millions of lives worldwide. He made unarguably the point that if governments are debasing, conservatively, at 5% per year US$ 500 trillion of global monetary assets, that´s a US$ 25 trillion of wealth per year which is literally stolen from people worldwide. To add my personal view to that of Saylor, one must also take into account the distorted perverse incentives which a fiat system generates, such as for example the need to keep alive and profitable the huge arms/military complex which needs to sell its products and therefore increase GDP revenues by periodically leading useless wars and causing the loss of millions of lives (the list of the GDP beneficial wars in modern times is endless, starting with the Vietnam to end with the latest disastrous western interventions in Iraq, Syria, Libya and Yemen).

The store of value problem in a fiat system:

In 80 years we transitioned from the Bretton Woods system, centred on the US dollar redeemable with gold (this system was broken in 1971 by Nixon defaulting on the gold-dollar redeemability), to a system based on US Treasuries as a store of value and finally to a system based on risk assets as a store of value. Saylor sees that this last transition happened lately around 2010 when investors have been forced into risk assets by the artificial compression and manipulation of interest rates by central banks. Investors had no alternative than seeking refuge in risk assets to protect themselves from zero or negative interest rates and monetary debasement. Investors soon realized that while government bonds were not even covering half of the monetary inflation, the stock indexes were averaging 7–8% per year and therefore were tracking pretty well monetary inflation. That´s why stock indexes became the preferred store of value (remember in 2011 the Swiss Central Bank buying hand over fist stocks). This investment framework collapsed in March 2020 when monetary supply increased at 25% per year. That is why bitcoin became now a compelling investment case for corporate and institutional investors and the sole store of value in this final chapter of the fast collapsing fiat standard.

What about gold´s role in Saylor´s “monetary planet”?

Well, here Saylor takes an extreme view with which I do not entirely agree and I would have expected Ammous to challenge him on that issue. But he did not, so I will try.

Is bitcoin volatile? any worries?:

March 2020 was for Saylor an inflection point. All that has happened to bitcoin before that inflection point, Saylor thinks will be irrelevant in the future. The inflection point has been the sudden awareness by a group of institutional and corporate investors of the impact of monetary debasement on their treasuries, which suddenly made bitcoin a compelling store of value for all. He is convinced that the new flow of institutional money into bitcoin will prove wrong all the previous models used to forecast price fluctuations (including my beloved indicator, Plan B so far extremely accurate and reliable stock to flow model). But undoubtedly his reasoning has merit and if March 2020 will really prove to be the inflection point which then triggered the investments of Microstrategy, Square, Paypal, Marathon, MassMutual and Tesla, this will mean that any other large institutional investor or quoted corporation entering bitcoin will add fuel to the fire and propel bitcoin to levels which no one could have dreamed of only 1 year ago. My own August 2020 prediction of US$ 248.000 bitcoin looks today quite conservative. Maybe we will have to re-calibrate the old models based on a completely new set of assumptions. Bitcoin´s past history might after all be little relevant in the future.

Conclusion

If Saylor is right, March 2020 has marked the first page of a whole new chapter in bitcoin´s adoption book. For the adoption to scale to the levels foreseen by Saylor though, I am convinced that we will have to see a consolidation of bitcoin´s market cap around US$ 1 trillion for quite some time in order to attract the interest of really large institutional investors. While the likes of Saylor, Ross Stevens, Mike Novogratz and Musk have written the first historical page of this new chapter, the likes of Apple and Blackrock will have to drive the next adoption phase.

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