Why MicroStrategy made a bet on Bitcoin
For Michael Saylor, Bitcoin is an elementary innovation, akin to fire or electricity. Like these discoveries, Bitcoin provides a new and simple way to store and transport energy in space and time.
Bitcoin Theory Analyzes the Reasons Why Bitcoin is an influential and inevitably global innovation. Let’s at least make an attempt to generalize the logic of the MicroStrategy (MSTR) position in the amount of a $2 billion loan financed by investing in military-technical cooperation.
MSTR Strategy
At the beginning of COVID, MicroStrategy shifted its focus to a fully virtual environment. In its recent second-quarter earnings report, the company announced its plan to continue ” using the virtual wave to improve the efficiency of market entry efforts, which increases overall profitability and provides additional resources for investing in research and development”.
So far, the fully virtual solution has been successful, as MicroStrategy has steadily grown as a business intelligence company over the past year.
A significant part of MicroStrategy’s fully virtual thinking is the digital asset strategy. After the decision to adopt Bitcoin as the main reserve asset of the Treasury, MicroStrategy has grown into the largest corporate holder of digital assets in the world.
Currently, MicroStrategy owns 108,992 MTC, has a debt of about $2.2 billion and pays about 1.5% interest. In a recent interview with CNBC, Michael Saylor stated: “Our point of view is to be a company with a long support for Bitcoin”.
MicroStrategy shares have risen by about 400% over the past 12 months. Due to the massive purchases of Bitcoins financed by borrowed funds, MicroStrategy shares are positively correlated with the dynamics of prices for BTC.
Over the past year, Bitcoin has become an integral part of MicroStrategy’s business thinking. The company believes that Bitcoin will continue to expand, and in accordance with this, it intends to never sell its BTC assets.
Most of MicroStrategy’s debt (more than $2 billion) is stored in the form of convertible bonds, and the rest will be paid off through further expansion of the profitable business. Due to the fact that MicroStrategy uses a credit position in Bitcoin, MSTR shares are becoming a de facto way for old investors to gain access to the crypto asset.
MicroStrategy, a company engaged in virtual business analytics, has a clear idea of all the subtleties of the modern Internet landscape like no one else. It prefers a long-term and macroscopic view of the economic consequences of new technologies. The company`s view is based on the belief that Bitcoin will become the main asset of the Internet for storing valuables. Think about it! Understanding the consequences of accepting Bitcoin on such terms can help to understand how the Internet will look like in the next 5-10 years.
Bitcoin Theory
Bitcoin theory uses economics, philosophy, natural sciences, and history to understand the economic implications of the Bitcoin network. First of all, Michael Saylor considers Bitcoin as the best of the currently existing long-term stores of value. His reasoning is based on a variety of factors. However, quantitatively, Saylor found a simple formula for calculating the overall success of Bitcoin, which, in turn, leads to the success of his company. The formula looks like this:
Value of BTC = adoption + utility + productivity + inflation
This formula divides the value of Bitcoin into four parts, however, it cannot describe the main impulses underlying the continuous growth of Bitcoin. That is, to fully understand the potential impact of the BTC, you should look not only at the numbers.
By analyzing Bitcoin from a macroscopic point of view, it is possible to more effectively understand the non-quantitative and less measurable social value of the network. This macroscopic understanding of Bitcoin seems to be the main reason for the massive purchases of Bitcoin MicroStrategy.
Macroscopic understanding of the network
To break away from the technical details and form a fundamental understanding of the logic of MicroStrategy, it is best to describe Bitcoin using meaningful analogies. The following comparisons are taken from various interviews with Michael Saylor and his podcast appearances.
- Bitcoin as an Unstoppable Organism
“I think of cryptocurrencies as a living being that we have released to live in cyberspace”,said Michael Saylor at the Bitcoin Miami conference in 2021.
Everything in the universe exists thanks to protocols that create new properties. For example, the universal gravity protocol leads to the existence of planets. Life arises through a genetic protocol or DNA, which causes cells to create a higher consciousness.
Continuing this idea, it turns out that Bitcoin is a new form of “life” that exists in the digital sphere. The Bitcoin network follows a self-replicating, decentralized protocol that encourages people to keep it alive. Because of this, the total network is a sum greater than its parts, and it cannot be destroyed.
As Michael Saylor has repeatedly stated, the invulnerability of Bitcoin is a key factor that makes it an excellent long-term investment. If you look at history, the defensive attributes of technologies over time have usually turned out to be more important than offensive ones.
Since the protection of Bitcoin is second to none, it can survive and change the world without suffering any damage. To liken this idea to nature, Saylor often describes the Bitcoin network as an impenetrable and regenerating hive of bees.
- Bitcoin as an Internet Nation
“The United States is an accumulation of military assets behind a water wall. Bitcoin is a cluster of cyber people behind an encryption wall”, said Michael Saylor in a podcast with Robert Breedlove.
The main reason for America’s international success over the past 150 years has been its unwavering defense and effective access to free trade. Access to this trade is due to America’s extensive control over the naval and air space. Throughout history, control over these important geographical regions has allowed countries to gain advantages over each other.
For example, in colonial times, Great Britain retained international influence due to its control over the ocean. Because Britain controlled the seas, it had the lowest barriers to free trade and thus accumulated the most capital.
Today, the new “sea” is the Internet. Currently and in the future, to control international capital flows, it is necessary to maintain control over the Internet.
Technology is a force that has always allowed countries to control geo-interests, accumulate wealth and influence people. Unfortunately, all the time this national control was supported by the threat of violence.
What distinguishes the technology underlying Bitcoin is that it provides the power of control – the power of property rights, to people without violence. Thus, cryptocurrencies exist as a peaceful alternative to the coercive actions of governments.
As we move deeper into the information age, it will become increasingly difficult for governments to exercise supervisory control over assets. Bitcoin, along with other cryptocurrencies, can be seen as voluntary nation-states that give people the sovereignty they instinctively crave.
Bitcoin is the first private property right that does not depend on the government. Apart from anything physical, security is, in fact, the largest export item of any country. Bitcoin provides the same security, except that it does not charge taxes and does not support the main threat of edification by violence. Thus, the Bitcoin network can be considered as a nation of people whose rights are protected by mathematical cryptography, and not by violence.
- Bitcoin as a perfect competition protocol
“Bitcoin is a cyber economy based on the principles of truth and thermodynamics”, said Michael Saylor.
For the last thousand years, gold has been the best commodity for storing value in time. However, there is a game-theoretic problem associated with the foundation of the monetary system on a physical commodity. The problem is that in a commodity-based monetary system, human ingenuity is aimed at making the underlying asset worse as a store of value.
For example, in a monetary system based on gold, if the value of gold increases, human ingenuity is directed to finding ways to produce more gold. Conversely, in a system based on cryptography, it is mathematically impossible to increase the supply.
Consequently, with money based on cryptocurrency, human ingenuity is implemented more constructively. Since Bitcoin eliminates unnecessary inflationary distractions, it effectively creates a social consensus of participants who are specifically focused on creating value.
Risk analysis
All these analogies suggest that Bitcoin will eventually be accepted worldwide. With investments in BTC, MicroStrategy primarily speculates on their implementation. The good news is that if Bitcoin does gain international recognition, it will be a net benefit for humanity. The bad news is that there are large and influential players who will not allow this.
Analogies describe some of the ways in which Bitcoin can benefit from being a multi-purpose currency network that is independent of the government.
Here is a summary of MicroStrategy’s investment thinking regarding Bitcoin:
- The value of Bitcoin is the result of adoption, utility, productivity and inflation.
- Currently, Bitcoin is the most effective method of transporting value in space and time.
- Bitcoin effectively directs human productivity and ensures full sovereignty without the threat of violence.
There are many factors contributing to the growth of Bitcoin and the creation of a huge network effect. It seems that the thesis of MicroStrategy is to follow the example of Bitcoin and use all these factors.
Speculating on the introduction of new technologies has always been a difficult test, but historical observations can give an understanding of what the further introduction of Bitcoin may look like.
Conclusion
Bitcoin is still a new technology. It may take a lot of time and energy for him to fully realize his place in society. Determined Bitcoin enthusiasts describe this learning process as developing an understanding of”Bitcoin theory”.
It is noteworthy that Saylor only learned about the MTC in 2020, but it was his knowledge of technological revolutions that made him go all-in. Listening to his speeches in podcasts about Bitcoin, you understand what his macroscopic understanding is based on. It effectively simplifies the complexity of Bitcoin with a simple language. And he’s right, but time will tell.