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It took the COVID-19 crisis for "a big tech enthusiast" like Michael Saylor to become seriously interested in bitcoin.
Saylor, the chief executive of business intelligence and software company MicroStrategy (MSTR), raised some eyebrows when he deployed $250 million of its balance sheet to buy bitcoin in August last year. The purchase marked the first time a publicly traded company invested in bitcoin as part of its capital allocation strategy.
Saylor made the boldest move in early December when he raised $650 million from a convertible bond offering and used the proceeds to buy another 29,646 bitcoins. As of December 21, MicroStrategy had spent a total of $1.125 billion on the 70,470 bitcoins that the company holds as its corporate Treasury reserve, according to an announcement.Saylor's Eureka moment
With his massive public bet on the digital asset, Barron's has called Saylor bitcoin's "most important proselytizer." But Saylor himself had been skeptical of bitcoin up until the COVID-19 crisis in March last year.
"I know it's something interesting and there's some people that care a lot about it," he recalled. "But it's noise and I'm really more concerned about what the next iPhone is going to be or what Facebook is going to do or the implications of Amazon rolling over 15,000 retail companies."
Then came the COVID-19 crisis that unleashed unprecedented fiscal and monetary support for the economy. Amid the monetary expansion, Saylor found the excess cash on MicroStrategy's balance sheet increasingly diminish in value.
"Over the last decade, we had progressive monetary expansion in the level of 5% a year, which was significant to people that were sensitive to it," he said. "But for people in the tech industry or people that were busy with some other part of their life, we could live with 5% monetary expansion and go about our jobs."
In 2020, the pace of monetary expansion reached 20% to 25% from the typical 5%, according to Saylor.
"Now you couldn't ignore the fact that the money supply was expanding," he said. "We were forced after March of 2020 to embrace the issue. We embraced it not because we thought Bitcoin was risk-free, but we figured the certainty of losing half your purchasing power over four years was enough compensation to justify taking the risk of doing something new."Encrypted code, digital gold, or safe-haven asset
The investment merits of bitcoin have long been a contentious topic.
Skeptics claim that the digital asset is simply an encrypted code and lacks any fundamentals for valuation, but Saylor believes it is "a digital gold on the dominant monetary network in the world."
He used Twitter's social network effect as an analogy of bitcoin's monetary network dominance.
"If I had an idea for Twitter and I thought I was going to launch a speech network, anybody could copy it," he explained. "But at the point that everybody has joined Twitter and they all looked at Twitter for half an hour or an hour a day, you got 400 million people pouring 400 million hours of bandwidth per day into Twitter, then it's not the software anymore, then it's a digital speech network. It's the dominant digital speech network for public speech."
In his view, much like YouTube is the dominant video network and Amazon is the dominant retail network, bitcoin is the dominant monetary network.
"Bitcoin is the brand of digital gold stuck in the minds of a billion people, but more importantly it's gathered $700 billion worth of monetary energy," he said. "On the other side of the network, with the miners, you have billions and billions of dollars invested in special-purpose hardware mining rigs, decentralized everywhere in the world, that has no purpose other than to run the digital gold network that is Bitcoin."
With more high-profile institutional investors joining bitcoin's network, Saylor believes that it will increasingly be perceived as the "newest institutional safe-haven asset."Bitcoin's many problems
However, for investors to truly accept it as a replacement for gold, bitcoin still has to cross many hurdles.
"If you embrace the idea, you have a store-of-value problem because of a macroeconomic sensitivity that leads you on a quest for what's your store of value," Saylor said. "Then you have to get over all of your concerns about forking and hacking and banning and is it legal and what's the tax treatment and the like."
Even the bitcoin holders themselves can become the problem. According to The New York Times, many bitcoin owners have forgotten passwords to their digital wallets or got locked out of their wallets after multiple failed guesses.
To put that in perspective, about 20% of the existing 18.5 million bitcoins — worth a total of $140 billion – are lost or in stranded wallets, according to the cryptocurrency data firm Chainalysis.
"Once you get past all those and you decide yeah Bitcoin is digital gold, it is the best safe-haven asset for the 21st century, then the issue is well how do I buy it," Saylor said. "You can't buy it from traditional banks and wirehouses."
In fact, it took Saylor about eight weeks to clear through anti-money-laundering procedures and make his first bitcoin purchase. While cumbersome, the process gave him another epiphany.
"I thought this is great because it's so hard to buy this stuff. It must be undervalued because everybody else that comes behind me is going to pay more for this," he said. "So I'm just going to go ahead and jump through the hoops, get the accounts, and I'm going to buy this stuff."
At the time, Saylor was spending about $9,400 per coin. As of Friday afternoon, the digital asset was trading at around $35,000 per coin after a volatile week that saw it swing between $35,000 and $40,000.
"I literally went to bed with anxiety, worried that when I woke up the price was going to shoot through the roof because people were going to realize that this is the perfect safe-haven engineered store of value," he recalled. "Luckily, I had a bit of time, but the truth is once people started to realize that, it happened pretty fast."
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