MicroStrategy is ready to profit from its Bitcoin bet
Also US wages have been keeping up with inflation and worldwide inflation levels.
Welcome to the Friday edition of the Ecoinometrics newsletter.
Every week we bring you the three most important charts (and tables) on the topics of macroeconomics, Bitcoin and digital assets.
Today we'll cover:
MicroStrategy is ready to profit from its Bitcoin bet.
Wages have been keeping up with inflation. That’s a problem.
Worldwide inflation levels are concerning.
Each topic comes with a small explanation and one big chart. So let’s dive in.
In case you missed it, here are the other topics we covered this week:
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MicroStrategy is ready to profit from its Bitcoin bet
If there is someone who surfed on the Bitcoin wave in 2020 that’s certainly Michael Saylor. He didn’t only did his best to try to hype Bitcoin in the business and investment community, he is also holding a very large bag of coins with his company, MicroStrategy.
As of today MicroStrategy owns about $4 billion worth of Bitcoins. They are on their way to control 1% of the total supply of Bitcoins. And in the middle of the bear market, they have a return on this investment of 0%.
Now there are three ways MicroStrategy could benefit from its Bitcoin bet:
It could just wait for the next bull market and cash out. With Bitcoin just getting back to the previous all-time high they stand to pocket a $5 bn profit on this investment. That’s probably more than any free cash flow they can generate with the business in a reasonable amount of time.
It could sell stocks. Right now the company is valued at the same level as its Bitcoin treasury. And it seems that investors are ready to buy on the promise they will reinvest the cash into BTC. At least until there is a Bitcoin ETF.
It could convert MSTR into a Bitcoin ETF. I’m joking. Or am I? I don’t think the software business they have is doing fantastically well. Being an ETF operator with so many coins under management would probably be more profitable.
The point is MicroStrategy has a lot of options thanks to those Bitcoin holdings. But I don’t think the particular situation they are in can be reproduced by any other company.
Wages have been keeping up with inflation, that’s a problem
Are you wondering why the Federal Reserve is so bent on keeping interest rates high to slow the economy and take down the jobs market? I have a chart for you.
The Federal Reserve wants to tackle inflation. Prices have spiked a lot over the past couple of years.
But you know what else has spiked a lot? US wages.
Actually wages have been following the same path as inflation. On the surface that’s a good thing. Inflation makes your savings lose purchasing power. But you can somehow keep up with your current expenses with the increased wages.
Well that’s the problem.
Higher wages also fuel higher prices. Prices need to increase to maintain the same margin if you pay your employees more. And as long as people can afford those higher prices with those higher wages there is no pressure on the price coming from a lack of demand.
This is a wage-inflation spiral that isn’t helping the Federal Reserve get a grip on the inflation rate.
Hence why the Fed is looking closely at the tightness of the jobs market. A recession would certainly help them on that front.
Worldwide inflation levels are concerning
If you average the inflation rate over all the countries in world (for which there is data) you come up with a 7% rate in 2023.
That’s lower than the peak at 8.7% in 2022. But that’s twice as high as before COVID. To put things in perspective, if inflation averages at 7% per year then the purchasing power of your savings is divided by two in ten short years.
And this is the only the worldwide average.
Europe, Asia and North America don’t have it so bad if you can believe that. But the Middle East, Latin America and Africa have inflation rates at over 12%. In those regions it then take less than 5 years to see the purchasing power of your savings evaporate.
Nothing short of a global recession will really help with that. Lose-lose situation.
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.
Cheers,
Nick
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MicroStrategy is planning to sell another $750 BILLION of stocks to buy Bitcoin?! Surely that's supposed to be $750m?