If you haven’t bought Bitcoin for the first time yet, the odds are good that you will. The question is whether you will do it sooner — and be glad that you did — or do it later and wish you had acted much earlier.
Bitcoin is not just an investment opportunity, like a stock that investors can own or choose not to own. It is the future of money, and the ultimate store of value, in a world where the fiat-based system is breaking down and going away.
In 1971, President Richard Nixon shut the gold window, delinking the U.S. dollar and gold. As a result of that action, U.S. treasury bonds became the de facto replacement for gold.
U.S. Treasury bonds are dying now, thanks to a negative real yield outlook as far as the eye can see. The fiat-based monetary regime that Nixon initiated in 1971 is dying, too.
The flipside of this reality is Bitcoin, which is nicknamed “digital gold,” but in many ways does the job of gold even better than gold itself. Bitcoin is easier to buy, easier to store, and easier to transport than gold. It is more divisible, more secure, and more scarce than gold.
All of this means that, while gold has a bright future — as bond yields turn negative and fiat currencies get debased at hyperspeed — the future for Bitcoin looks even brighter.
This is why Michael Saylor, the founder-CEO of MicroStrategy said the following earlier this year:
“I considered investing our treasury in fiat, bonds, stocks, swaps, index funds, options, real estate, commodities, precious metals, art, & intangibles before settling on Bitcoin. It seems like the ideal long-duration asset.”
The lion’s share of Bitcoin supply is in the hands of investors who hold it, rather than flip it or trade it. According to crypto analyst Yassine Elmandjra, 63% of circulating Bitcoin supply has not moved over the past year.
The willingness to hold onto Bitcoin, and not sell it, is directly tied to Bitcoin’s use case as a store of value and a long-term inflation hedge. Entities that purchase Bitcoin for the sake of hedging exposure to fiat currency assets will have no reason to sell if the price of Bitcoin doubles, or quadruples, or quintuples.
If anything, a stratospheric rise in the Bitcoin price — if coupled with fiat currency erosion — would inspire inflation hedgers to buy even more, as their fiat-denominated bonds see inflation-adjusted losses.
In light of all that, an Oct. 8 announcement was big news: Square, a publicly traded payments processor, purchased $50 million worth of Bitcoin.
Square revealed the purchase of 4,709 Bitcoin with the following statement on Twitter:
“Square believes cryptocurrency is an instrument of economic empowerment and provides a way to participate in a global monetary system, which aligns with the company’s purpose.”
It was big news when MicroStrategy, a company worth $1.6 billion, announced on Aug. 11 a switch to Bitcoin as its main corporate treasury asset.
But the announcement from Square — a company worth $83 billion as of this writing — could be a Bitcoin game-changer on a whole new level, for multiple reasons.
- The corporate treasury announcement from MicroStrategy could possibly be dismissed by other corporate financial officers (CFOs) as a one-time quirk. A follow-on message from another publicly traded company, this one roughly 52 times bigger, is impossible to ignore.
- Square is a Silicon Valley heavyweight. Square’s co-founder and CEO, Jack Dorsey — who is simultaneously a co-founder and CEO of Twitter — is one of the most visible tech leaders in the world. This greatly increases the odds that other Silicon Valley companies will follow Square’s lead in considering Bitcoin as a corporate treasury asset for a small percentage of holdings.
- Social validation is a key driver of institutional behavior. A breakthrough level of social proof, via Square, could accelerate Bitcoin’s uptake as a corporate treasury asset, with early adopters in Silicon Valley leading the way.
- Shortly after announcing the $50 million Bitcoin purchase, Square released a white paper explaining how they did it. (You can access the white paper here.) As a top-tier payments processing company, Square is not just pointing other CFOs in the right direction; it is showing them how to walk the path.
As a general rule of thumb, CFOs are risk-averse. The main job of the CFO is not to invest for capital appreciation, and certainly not to speculate. Instead, the CFO makes sure the company has cash on hand for day-to-day operations, while safeguarding against liquidity issues and financial risks.
In this sense, the risk-averse nature of CFOs is a positive for Bitcoin. That is due to the rising risk profile of U.S. dollars and U.S. Treasury bonds, which comprise the vast majority of corporate treasury assets.
The logic here is simple: If a company has 100% of its reserve assets in dollars and dollar-denominated bonds, that company is exposed to inflation risk — via loss of purchasing power — as the value of dollar-denominated assets gets eroded by currency creation.
If the company has, say, 1 to 5% percent of its assets in a dollar alternative — like Bitcoin — then inflation risks are reduced. If the dollar loses a substantial amount of value over multiple years, Bitcoin is likely to see its value increase by many multiples of what the dollar lost.
This means Bitcoin functions as a low-cost insurance policy when held in conjunction with a large pool of dollar-denominated assets. Better still, Bitcoin can work as a form of inflation insurance that can generate a substantial positive return on investment.
As more corporate CFOs realize this, they will come to understand that owning zero Bitcoin is a riskier proposition than owning at least a modest percentage. The CFO whose treasury holdings are 100% dollar-denominated is taking a bigger risk than, say, the CFO whose holdings are 97% dollar-denominated assets and 3% Bitcoin.
Wealthy investors holding large amounts of cash are coming to the same realization.
In a time of accelerating fiat currency debasement, with the Nixon-era system passing into twilight after 50 years, cash and bonds bear substantial inflation risks. A modest Bitcoin allocation is not just a compelling investment opportunity, but a direct means of hedging that risk.
Then, too, there are a fixed number of Bitcoins in the world (though each individual Bitcoin is divisible into 100 million units). The supply of new Bitcoins is mathematically guaranteed to decrease over time, and will eventually hit zero.
From there it is just a matter of supply and demand. A limited amount of supply, coupled with rising global demand — from corporate treasury departments and large institutions, along with individual savers everywhere — mean Bitcoin is headed toward a multi-trillion market cap.
Events like the Square announcement are how it happens. Bitcoin’s journey to becoming a broadly accepted global reserve asset, on par with gold, is no longer theoretical. We are watching it happen before our very eyes.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.