Institutional investors are coming... We have heard that for at least 4 years.
But judging by the public comments from Paul Tudor Jones, Stan Druckenmiller, the CEO of BlackRock and others… it feels like they are finally there.
The narrative driving their interest is clear: Bitcoin is slowly turning into a new store of value.
And this narrative is not a pie in the sky. Everything shows that Bitcoin is used in practice as digital gold.
Nothing we have seen in the news last week goes against that.
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
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Michael Saylor is stacking sats
MicroStrategy is taking the idea of stacking sats to a whole new level.
Bitcoin is back to its all time high and Michael Saylor has some cash on his hands. So what to do?
Buy more Bitcoin of course.
Michael Saylor is putting his money where his mouth is. Every time MicroStrategy generates some amount of cash reserves they choose to convert those to Bitcoin.
That’s stacking sats $50 million at a time and it totally makes sense.
Remember that all Bitcoin Treasury investments have two components:
Bitcoin is a store of value. By design converting your cash to BTC will at least protect your purchasing power over a long time horizon.
Bitcoin is an asymmetric bet. Because we are so early on the adoption curve you can expect that on top of preserving your wealth, BTC will also substantially appreciate over at least the next decade.
All adopters of Bitcoin as a treasury asset get the benefit of the store of value.
But those bold enough to adopt it early also get the benefit of potential large returns on investment.
If you are generating some cash flow, like MicroStrategy, you will want to preserve its purchasing power. That’s point number 1 and that’s always a good reason to convert your fiat to BTC.
Then there is point number 2 which is more of a timing question. The earlier you start converting your free cash flow to Bitcoin the more you’ll benefit from the upside coming from the growing adoption.
So far among public companies only MicroStrategy seems to have adopted this strategy of “stacking sats for businesses”.
Square has started converting a small amount of cash to BTC so they are a good candidate to potentially do the same thing.
So how well have those Bitcoin treasuries bets paid off so far?
Since BTC is back at its all time high obviously no hodler lost money.
Coin Citadel built their position before the big run up of the previous halving cycle and they were handsomely rewarded for that.
But all the others who got into the game during the second part of the 2nd halving are in pretty good shape too.
Among them MicroStrategy has… well… a pretty good macro strategy. Michael Saylor being very vocal about their Bitcoin treasury move certainly contributes to the rise in their share price.
A few months ago MicroStrategy had a market cap just over $1 billion. Fast forward to now, 40k BTC later, and MicroStrategy now has a $3 billion market cap.
As we discussed a few weeks ago that isn’t surprising.
The ratio of Bitcoin hodlings to market cap was pretty high for MicroStrategy. So as we commented back then it is normal that changes in the value of BTC affect their share price the most.
Square which is a much larger company with a much smaller amount of Bitcoin in their treasury is less likely to see its share price affected by the value of Bitcoin.
One way of capturing this kind of information is to look at the flippening Bitcoin price for each of those publicly traded companies. It is defined as the BTC price at which the value of their Bitcoin treasury becomes larger than their market cap.
The lower the flippening Bitcoin price the more likely it is that a change in the value of Bitcoin will also drive up their share price.
For MicroStrategy it was $30k a few months ago. It is now $75k. That means their market cap is catching up to the value of their Bitcoin treasury.
Check it out.
If you are wondering if it is still time to buy now after Bitcoin is back to its all time high then consider the following:
BTC at $50k has the same market cap as Google.
BTC at $100k has the same size as Apple.
BTC at $286k is still smaller than gold.
Conclusion: buying Bitcoin at $20k is still an asymmetric bet!
Reserve currency
It feels like we are talking about BlackRock every other week in here… I guess this is good for Bitcoin.
Larry Fink, the CEO of BlackRock, is acknowledging that many high net worth individuals and institutional investors are now taking a serious look at Bitcoin.
And Larry Fink is asking an interesting question: if one can use Bitcoin as a reserve asset why do we need the US dollar as a reserve currency?
Hmmm…. good question!
What are your options in terms of reserve currency if you want to replace the dollar?
First you have other fiat currencies. But obviously any other fiat currency will have the same shortcomings as the US dollar:
You are at the mercy of the policy decisions of a central bank. So always be prepared to risk debasement.
One country controls the currency you are using as a reserve. That means they can control how you can use this reserve currency. Which is another way of saying that payment systems based on this currency are permissioned.
These are features not bugs.
If your reserve currency is the US dollar you are a slave to the Federal Reserve and the US Federal government. Switching to another fiat currency is just switching to another set of masters.
Another option is to trade your reserve currency for a store of value.
Gold is a store of value that has a long history of doing its job. But when it comes to making international payments sending gold around is obviously not very practical. And while it is relatively scarce it does not have a strict fixed supply and gold reserves are hard to audit.
Bitcoin is also a store of value. Thanks to being digitally native it is simple to settle large international transactions with it. The Bitcoin network is a permissionless system, so you don’t have to worry about a state actor stopping you from transacting. Finally Bitcoin has a strict scarcity defined by its fixed supply and algorithmic monetary policy.
So yes, things are looking pretty good for Bitcoin.
We are a long way from getting Bitcoin to a status of global reserve currency. Actually given that this status is mostly a geopolitical question there are chances it will never happen.
But becoming a global store of value, potentially much larger than gold itself, is a real possibility given a long enough time horizon.
One step at a time though. In the next few years the main goal of Bitcoin is to take a significant share of the gold market and that’s what we should be focusing on.
We are very early.
That’s it for today. If you have learned something please subscribe and share to help the newsletter grow.
Cheers,
Nick
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
Click on the subscribe button right below.
Done? That’s great! Thank you and enjoy.