Michael Saylor’s leadership at MicroStrategy has led to impressive results through a pioneering bitcoin treasury strategy.
MicroStrategy’s stock value has surged by 305%, outperforming traditional assets, making it the largest corporate holder of bitcoin.
Last week Saylor unveiled the next phase of this strategy with a pivot towards Bitcoin development, leveraging their expertise in business intelligence software to position MicroStrategy as a global leader in the Bitcoin space.
MicroStrategy’s Bold Bitcoin Treasury Strategy
Over the last four years Michael Saylor has been putting on a global master class for executives with shockingly little fanfare considering the results.
In the spring of 2020 MicroStrategy (MSTR) implemented a one of one Bitcoin treasury strategy, using a mixture of free capital, equity, and debt to accumulate and hold bitcoin as a balance sheet asset to offer their shareholders a secondary upside investment, while protecting the company from ongoing currency debasement.
The results have been staggering.
Since August 2020, MSTR, up 305%, has outperformed Bitcoin, six of the seven magnificent 7 tech stocks, and routed the indexes, precious metals, and the bond market. The firm’s aggressive buying strategy has propelled it to become the world’s largest corporate holder of bitcoin, with a treasury totaling 190,000 BTC valued at around $9 billion.
Unlike traditional trust companies, MicroStrategy has active control over its capital structure, enabling it to venture into areas beyond the purview of spot Bitcoin ETFs. This pivot positions MicroStrategy not only as an alternative to investing in bitcoin or bitcoin ETFs but also as a new kind of bitcoin growth stock.
MicroStrategy’s venture into Bitcoin development will entail the creation of applications and software designed to extract value from the Bitcoin Network. Saylor’s enthusiasm for exploring opportunities across various layers, including the base layer and Layer 2 protocols such as the Lightning Network, highlights MicroStrategy’s comprehensive vision for Bitcoin development.
This strategic evolution aligns seamlessly with MicroStrategy’s existing bitcoin strategy, leveraging its investors’ confidence in the company’s familiarity with Bitcoin and business intelligence software. The convergence of these factors creates a compelling narrative for long-term bitcoin investors. An apt analogy is the approach of land developers who accumulate vast land holdings before initiating large-scale development projects.
Saylor’s Unwavering Conviction
For Saylor, this is yet another example of having the requisite intellectual fortitude to envision and enact such a change. While the majority of Fortune 500 executives might find it challenging to articulate the value proposition of bitcoin, MicroStrategy has managed to accumulate nearly 1% of the entire global supply.
If Bitcoin continues its trajectory of adoption, MicroStrategy stands to build a treasury that appreciates in dollar terms indefinitely, all while leading the charge in enterprise software for the next era of digital commerce. Saylor has once again written a new chapter in what will be regarded as one of the most audacious strategic corporate decisions in history.
Pete Rizzo’s recent appearance on What Bitcoin Did presented a nuanced argument for the value of Bitcoin Ordinals, which struck a chord with the X community, and a number of high profile bitcoiners weighed in with a range of reactions from surprise to utter disdain.
I would fall into the camp Rizzo describes as monetary maximalists. Ironically, I think it was just what we used to call hardcore bitcoiners before Ordinals, who would be defined as bitcoiners who feel that Bitcoin has so much value to offer the world as an apex form of money that other potential uses regardless of validity have no place.
I’m not interested in NFTs so I haven’t followed Ordinals closely. I don’t know how to buy one. I believe our primary responsibility in bitcoin today is to help adoption and be good stewards of it for future generations who will need it even more than we do. However, I am anti-censorship and have been very interested in the debate around filtering mining pools. It was Andy Edstrom’s reaction to the episode that piqued my interest to tune in.
It’s a sensitive topic, debating how jpegs of cats might be beneficial in accelerating bitcoin adoption and whether there is merit in using block space to enable this type of behavior. Or whether anything can even be done about it, and if there can be, if it is the right thing to do.
Rizzo’s assertion is that it’s happening and it’s going to continue to happen so we might as well be able to talk about it. The passion of Bitcoiners is truly remarkable, as evidenced by the intense reactions sparked by a topic like this.
Certainly, in part, the stark contrast between the mission of addressing the issues with fiat money and the goal of proving ownership of a jpeg contributes to this distinction. However, Rizzo was at least partly successful in striking some compelling points, which even if invalid, did create a substantial reaction.
Bitcoin Ordinals Debate: Should Bitcoin Only Be Money?
NFTs have a market, and that market creates reasons for other networks to exist. Powerful interests such as Wall Street and Silicon Valley have big bets on other chains and Rizzo argues that ordinals invalidates the position that bitcoin is a single application blockchain.
In Rizzo’s eyes this has two benefits. One is it calls into question the reason for any of the other chains to exist, and two is, it creates a reason for those groups (Wall Street & Silicon Valley) to hedge by developing on Bitcoin. He makes the argument that the reverse scenario is also true; a world where bitcoin does not have NFTs. It should also be considered that a world where some part of the “crypto” apparatus is valuable is a world where someone has some incentive to hold some crypto other than Bitcoin.
The caveat here is that “development” presumably would be a mix of other quasi and non monetary related features, and in this case, those aspects might not offer a lot of real world value. If bitcoin development turns it into things other than the best money ever, is that a good thing? Moreover, does Bitcoin need to attract money currently being invested in other chains to win over the long run?
The tradeoffs are not as simple as Rizzo suggests. Bitcoin was built to do something very specific and with that comes real limitations. Stefan Livera penned a detailed retort explaining specifically the dangers of some of those, such as UTXO explosions which have real consequences for the network today.
NFTs are Scams
Not only do NFTs on Bitcoin clog the blockchain and raise fees, they are providing a feature which is antithetical to the core purpose of Bitcoin. Bitcoin Artist Madex covered this in detail on a recent episode of The Block Reward. NFTs run counter to core values of Bitcoin no matter how you slice it. NFTs are not scarce, take little work to produce, and are essentially pump and dump schemes or tools for money laundering. Most NFTs go to zero.
The ethics of NFTs and the motivations behind many of the projects are questionable. They do note really belong on Bitcoin. This gets at the core of why I think so many Bitcoiners are irritated at the thought of NFTs becoming a normalized aspect of Bitcoin. Even Rizzo commented that a world where “Bitcoin looks more like Solana is a world where Bitcoin looks less special”. A more apt way of phrasing this is to say it is anti-Bitcoin to work towards bringing scams to Bitcoin.
“At the end of the day, if you are imposing your own ideological framework that tries to shift Bitcoin’s incentives, then maybe you are the attack on Bitcoin.”
— Pete Rizzo
One argument presented by Rizzo that does merit consideration is that the anti-ordinal efforts are spending time and money working on technology designed to censor bitcoin transactions, and that time and energy could be better spent building. He further suggested it also potentially endangers Bitcoins claim of being censorship resistant.
The idea that some kinds of activities will be allowed on bitcoin and others will not, could be potentially a slippery slope. While not totally analogous, Rizzo did point out that Bitcoin consensus seems to have adopted a pro-ETF stance even though ETFs are non-Bitcoin products.
It’s an unfair comparison in my view, as far as we can tell, ETFs do not appear to have a negative effect on price of data or traffic on the network. If anything, you could make the argument that ETFs are almost acting as a layer 2, reducing the load on the base chain. They are also arguably a monetary use case.
However, it’s a fair point to say that the practice of actively moving to snuff out activities deemed undesirable in the current times, could set a dangerous cultural precedent in Bitcoin.
The reason this particular episode got the attention it did, is because it was a great conversation. Personally it did nothing to persuade me that Ordinals have any lasting value. I think they are all scams that will trend to zero against bitcoin, just like everything else. But, I also think that hearing alternative perspectives we disagree with, even just to understand them, is a worthwhile endeavor and I applaud Rizzo for his tact in delivering a number of ideas bitcoiners disdain.
Maximalists are right to take this issue seriously. Bitcoin was a one time event, and that means we have one shot at ending the extractive and usurious fiat system. At the same time, Ordinals has created the reality that other potential non-monetary use cases for Bitcoin will evolve over time as well. As Bitcoin matures, there will be more disagreements about what kinds of activities are appropriate for the network.
Bitcoin is a complex network of incentives and an evolving tool that will almost certainly function differently in twenty years than it does today. Who’s to say who is right? I believe intellectual curiosity is healthy. Watch the interview and see what you think for yourself.
Central banks target inflation and the success of that target is often measured in Consumer Price Index (CPI), which refers to the cost of an arbitrary basket of goods meant to approximate the general cost of living.
But how meaningful is CPI as a benchmark for growing and preserving your standard of living in the face of monetary policy expansion? If the cost of the things you might really want to own, like real estate, increase at a much higher rate, then how useful is CPI? Put another way, which measure is more indicative of the health of your money over time:
a) your ability to buy day to day consumables or
b) your ability to buy long-term desirable assets?
This article seeks to shed light on the substantial difference between official inflation measurements, such as CPI, and the actual depreciation of the U.S. dollar against tangible assets and the implications this distinction has for assessment of investment returns.
The Discrepancy in Inflation Rates
In a keynote address at LaBitConf last November, Microstrategy Chairman Michael Saylor delivered a presentation outlining the thesis that investors seeking to preserve the value of capital should ignore CPI and focus on the long-term appreciation of rare and desirable assets, which are a clearer barometer of currency depreciation.
Using monetary expansion as the measure shows a rate of monetary debasement much higher than the typical inflation target of 2%. The reality is closer to 7% in the US and much higher elsewhere. When thinking about preserving your wealth over time, Saylor argues, what matters is your ability to buy assets that will store value as the value of the monetary unit erodes.
The Dollar Priced in Assets
To comprehend the extent of the dollar’s decline, it’s crucial to assess its performance against various assets. The US dollar has lost 99% of its value against gold since 1932, soaring from $20 an ounce to $2,000 an ounce. Similarly, the S&P index, representing the top companies in the United States, has seen the dollar lose 99.8% of its value in that same timeframe moving from $4.89 per unit to $4850.
International Comparison of Currency Depreciation
As the US dollar depreciates against assets, it is essential to consider its impact on international currencies, which themselves are losing value against the dollar. Despite talk about the world de-dollarizing, foreign currencies have struggled to hold value against the US dollar since 2011.
The Euro and the British Pound have declined more than 20%. The Canadian dollar in that same window is down 26%, while the Australian Dollar is down over 35%. Weaker currencies have fared much worse. The Turkish Lira is down over 94%, while the decline of Argentine peso reaches a staggering 99.8%.
Monetary Policy Expansion: Illustrating the Issue With Real Estate
Examining the rapid depreciation of the dollar against real estate, particularly in ultra-desirable locations like Miami Beach, provides a valuable perspective.
90 years ago, the cost of an acre in Miami Beach was $10,000, and today the value has surged well into eight figures, marking a significant increase of 1,000 to 2,000 times. The fixed nature of beachfront property, coupled with its desirability, makes it immune to human manipulation. Unlike consumer goods that can be mass-produced, beachfront property’s scarcity ensures its value increases proportionally as the money supply expands.
Real estate in general has appreciated much faster than 2%. The median home price in the US was $24,300 in 1971, and peaked in Q4 of 2022 at $479,500.
M2 in Canada has expanded on average 8.5% since 1969. Which, if you follow Saylor’s logic, probably explains why real estate prices north of the border have exploded compared to their American counterparts. As of January 2024, the average home price in Canada is $657,145. The average price of a home in Toronto in 1971, was $30,426. That’s over a 2000% increase over 53 years, at an average of just under 6%.
Conventional investing ideas often judge a successful rate of return on the ability to beat CPI. However, in reality, investment gains are often driven by the monetary inflation rate, as illustrated by the correlation between the money supply and the S&P 500.
Over the last 10 years the 60/40 portfolio has returned an average of 7.69%, which is almost identical to the 153 year average return of 7.66%. Effectively the 60/40 has created a real rate of return of zero when compared to monetary inflation.
If you happen to live in a country where the U.S. dollar is not the currency, the chances of outperforming currency depreciation become much smaller. Investors in those countries face dual headwinds of greater monetary expansion, and smaller, less robust capital markets. In Canada, the S&P/TSX has averaged 6.1% return since 1996, the Nikkei returned 4.66% between 1984-2021.
What’s the Difference Between 2% and 7%?
It’s huge. At 2% that 60/40 portfolio is protecting your wealth and even providing some growth. At 7% that same portfolio is a flat or negative return. That comes before considering capital gains taxes. Even allowing for different forms of tax-sheltering depending on the country, there are very few opportunities to invest without paying any tax in the US, Canada, UK, or Australia. Taxes further erode gains.
More importantly is understanding the true rate of monetary decay. At 2% your money loses half its value every 36 years. At 7% it’s every 10 years.
The Rise of Bitcoin as a Monetary Network
Bitcoin inverts the hierarchy of scarce, desirable investments by offering something that, on a per capita basis, is as rare as beachfront land in Miami, that can be purchased fractionally by every person on the planet. Its value proposition lies in being an uncensorable, non-confiscatable currency that cannot be inflated.
Most fiat currencies have lost 98% of their value, priced in bitcoin over the last 10 years. Most indexes and asset classes are down 95% against it, and that includes gold and real estate. Over the last 10 years Bitcoin returned a 49.92% CAGR.
Traditional asset managers often categorize bitcoin as a “speculative” asset but even that term when applied to Bitcoin is almost always applied incorrectly.
One can view Bitcoin as a speculative asset, as long as the understanding is that it is a speculative bet on bitcoin appreciating in fiat currency terms because one currency inflates and the other does not.
Most people who consider bitcoin speculative, apply the term thinking bitcoin risks fades into obscurity or experience a catastrophic technical failure. Neither is impossible, but equally, neither is likely.
Bitcoin provides investors the opportunity to own an asset that can appreciate based on its value proposition, without it having to be a company managing staff and profits, or a property needing managing upkeep.
To use Michael Saylor’s own words“If you took a global technology company offering the most desirable product in history and then stripped away the risks that all companies incur due to their operations and obligations, you would have bitcoin.”
Whether you are measuring CPI or monetary debasement, your money is losing value by design. By continually focusing attention on CPI, which is a manipulated and much lower number than monetary expansion, the real rate of loss of purchasing power is being obfuscated. The challenge of outperforming currency debasement over time is harder than we think and the real rates of return on most investments are also smaller than advertised.
Understanding this distinction is critical for successful long-term investing as the measurement for inflation is also the baseline for success.
Bitcoin presents an alternative to investing. It’s not just a money that cannot be inflated. It is an alternative to gambling your money on companies to try and outrun debasement, by simply owning money that cannot be debased. Bitcoin is the solution to the problem of decaying monetary value.
Last week, Samantha LaDuc, a prominent television personality, poked the cyberhornet’s nest on X with some bold assertions about bitcoin’s supposed shortcomings. Among her claims was the argument that Bitcoin cannot genuinely be considered scarce due to its infinite divisibility. These comments reignited a debate on X which has made the rounds every few years, most recently in 2021 when Frances Coppola made a similar assertion.
This is not the first time in the world of Bitcoin that someone was unaware of an argument and then assumed that argument had not been resolved. The divisibility debate has become a quintessential example of this phenomenon in the Bitcoin community, and pizza has become the preferred tool to conceptualize the answer.
Bitcoins Finite Supply: How Many Sats in a Bitcoin?
Bitcoin can never be sent off the Bitcoin network. It’s a closed system, with a permanently capped supply of 21,000,000. This is something that will never change. Bitcoin’s divisibility is an inherent feature, allowing it to be potentially further subdivided in the future from its current units of measurement, bitcoin, and satoshis. 1 bitcoin consists of 100,000,000 satoshis, making the total number of satoshis 2.1 quadrillion. That’s a lot of satoshis! Undoubtedly 2.1 quadrillion of anything is a large number, but in what context? Why does infinite divisibility not translate into an infinite supply?
Proof of Real Work
In the digital world making copies of something is simple. You can save the same picture on your computer as many times as you want with little effort. This leads many outsiders to assume that the same is true for bitcoin.
A common trope is that Bitcoin has no value because it is non-physical, and this is an extension of the idea that digital things are easy to produce. Part of the innovation that makes Bitcoin unique is the proof of work consensus mechanism, which ties the production of new bitcoin to energy being consumed in the physical world. Bitcoin are not created out of thin air, and even though you can’t hold them in your hand- there is a provable amount of work that goes into each bitcoin that is released into the network.
Fiat currency on the other hand is created with no work and has an unlimited supply. In the fiat world, money is just a medium of exchange, because its inability to function as a store of value cripples its capacity as a consistent unit of account. As a result, people don’t expect much from money, other than to be able to use it to buy other things.
Hard Money You Can’t Hold in Your Hand
So we have a confusion here, consisting of a few different ideas.
One is the idea that money does not have intrinsic value, because fiat money does not have intrinsic value. This comes from not understanding the work required to create bitcoin and the absence of work required to create fiat money.
Second one is the notion that non-physical things are effortless to produce because we cannot touch them. Bitcoin is a non-physical money that requires significant effort to create. Compared to our physical money, which requires no effort to create.
The assumption is bitcoin is money and it is digital and in our minds, both of those things have no value, so bitcoin must have no value. But bitcoin is money that requires significant effort to produce and is impossible to counterfeit. The ability to divide it infinitely represents an innovation that transcends the limitations of physical things.
Gold is impractical as transactional money because of the total amount available and the difficulty in creating small enough units to manage day-to-day transactions. Bitcoin’s divisibility makes it ideal for this challenge. It also means that bitcoin can be used globally. No exchange rate is needed if it gains worldwide acceptance. The cost of goods can be local, even if everything is priced in bitcoin.
The Infinite Pizza Argument
Pizza makes for a great visual to conceptualize the problem with the divisibility argument. In the physical world, dividing something finite does not increase the amount of that thing, it merely separates it into smaller pieces. One pizza cut into 4 slices, or 40 slices does not change the total amount of pizza. If it did, one pizza, cut into an infinite number of pieces would solve world hunger. We know this is not the case. In the world of pizza, the smaller your portion, the less likely it is to satisfy your hunger.
Being able to divide bitcoin into smaller and smaller parts doesn’t create any more of it either. It just means that theoretically more people can have access to smaller and smaller portions, which will be useful as the number of participants on the network grows, and the total amount available remains permanently fixed. Thinking about a single morsel of pizza might be helpful here too. As bitcoin is divided into smaller and smaller units, this is likely to be the result of those units buying smaller and smaller things.
This is where bitcoin truly diverges from all other forms of money in the world today. As fiat money loses value through constant dilution, more money over time is required to make even small purchases. Money itself is a good, and when that good is abundant, everything you might buy with it becomes scarce. When money requires no effort to produce, there is no relationship in the physical world between the work required to produce the goods and the work required to produce the money.
Therefore, money created without work has no inherent value. Conversely, finite money, even as it undergoes infinite subdivision, renders everything else non-finite. As Bitcoin is further subdivided, the unit of account shrinks. Regardless of how small the units become, there is still only the same amount of bitcoin to buy an infinite number of stocks, properties, fine art, fast food, and whatever else your heart desires.
Just as cutting the pizza up doesn’t solve world hunger, subdividing a finite number of bitcoin, despite the enormity of the number of satoshis, does not negate their inherent scarcity.
We are 15 years into Bitcoin. There are people all over the world studying it obsessively. By this time, most if not all of the common concerns have been addressed sufficiently. There are surely unknowns that lie in Bitcoin’s path, but they are unlikely to be unearthed at this point by people with little to no understanding of Bitcoin.
For the same reasons that infinite pizza does not solve world hunger, a finite number of satoshis, even if it is a very large number, does not equate to them being abundant. By understanding the nuances of bitcoin’s infinite divisibility and its implications, one can appreciate the intricacies that differentiate it from traditional fiat currencies and physical commodities. The finite nature of Bitcoin, even in the face of infinite subdivision, underscores its unique position as a monetary network and truly scarce digital commodity.