In today's Finshots, we talk about a company that just converted most of its cash into Bitcoins.


The Story

A little know listed company in the US — MicroStrategy just took $250 million from their balance sheet and purchased 21,454 bitcoins in a bid to extract more value from their investment.  Their CEO, Michael Saylor had this to say soon after —

“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders. This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash.

This is perhaps the first instance of a mega-corporation vouching for Bitcoin. And if recent developments are anything to go by, this could just be the beginning of a new revolution.

Consider Venezuela. Last year, the International Monetary Fund estimated that inflation in the country would reach 200,000% and that the economy would contract by 35%. Meaning their currency — the Bolivar would soon become worthless. In fact, people were already making craft items out of it. It was a pretty sad state of affairs. But they still had to transact. They still had to trade. And they had to make a living so long as they stayed in the country. So some folks resorted to barter. You give me food, I give you leather. It works. Even others transacted with the dollar after the government permitted limited use of USDs within the country. But a tiny brave minority have decided to use cryptocurrencies to bypass the authoritarian regime altogether. Meaning retail adoption is already picking pace as we speak. Albeit at a rather tiny scale.

Point of Interest: After witnessing hyperinflation and a sharp contraction in economic activity, the government of Venezuela also implemented the first instance of a state-backed cryptocurrency called the Petro. However, the project failed to fully take off when even the most hardened crypto enthusiasts refused to acknowledge its legitimacy. As one reporter  put it — “The petro is about creating something useless — that’s why only foreigners can buy them, but only Venezuelans can spend them”


A shift in perception

This has led some to speculate that cryptocurrencies could potentially be used as a global reserve currency. It’s a fancy way of saying banks and governments could use bitcoins to trade and settle transactions whilst not using their own currency. Right now, the dollar serves as the unofficial global reserve currency owing to the fact that the US is still the world’s largest economy and trading nation. The dollar is relatively stable, easily accessible and most countries accept payments in USD offering the currency considerable influence. However, that influence has been waning and there have been repeated attempts to replace it with something that’s more decentralized. Something that isn’t backed by one single country. Maybe a basket of currencies? Maybe even bitcoin?

But truth be told it’s very unlikely Bitcoin will suddenly emerge as an alternative. It’s still too volatile. Governments don’t trust it yet. And there are always concerns surrounding liability. Who is responsible if things go south? We don’t know. But that doesn’t mean it won’t have a role to play in the near future. Tectonic shifts in the monetary landscape aren’t exactly unheard of. As the American Economist, Tyler Cowen recently noted — “Every era’s monetary institutions are virtually unimaginable until they are created.” So maybe cryptos might see renewed interest from nation-states soon enough.

The final bit of this story has to do with the original transaction itself. Some people speculate that this investment might be an elaborate effort to mislead investors. After all, the CEO was accused of perpetrating a fraud by the SEC (US Regulator) back in 2000 and the company had to restate its revenue and profits after settling with the regulator. However, considering we still can’t tell how any company could get away with a scam investing in bitcoins, we hope this bit is just speculation and it isn’t an attempt to mislead unsuspecting investors.

Until then…

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