A Warning To The Compounder Bros…
August 10, 2020
On Taking Vacations…
August 20, 2020

BTC 3.0

I am known as a guy who gets infatuated with a handful of stocks or sectors at a time. I let the subconscious drive me, and as my interest level expands, so does my position sizing. The objective is to take a few highly concentrated shots on goal each year; where I can size up and risk almost nothing by catching the precise inflection-point for hyper-charged returns.

I bring this up as I seem to have become mesmerized by Bitcoin. This is not because I think it changes the world or any nonsense like that—it’s fundamentally worthless. Rather, I like the interplay between almost infinite upside and a minimal risk level as I’ll stop-out long before it hits my adjusted cost basis in the low $9,000s. More importantly, catalysts seem to be piling up for an imminent move.

If you take a step back, there have been two distinct Bitcoin bubbles thus far, mostly led by money laundering and retail enthusiasm. While both drivers are still alive and well, the coming Bitcoin super-bubble will be led by institutional demand—only these super-whales have the sort of buying power to move an asset class worth roughly $200 billion. I have already drawn your attention to the Grayscale Bitcoin Trust (GBTC – USA) which has hoovered up approximately 25,000 additional coins in the three weeks since I posted my piece. To put that into perspective, that’s nearly 35 basis points of my total estimated “free float.”

However, I want to focus on a very unique event that happened last Tuesday, August 11th. MicroStrategy (MSTR – USA) announced that they had purchased 21,454 Bitcoins for a total purchase price of $250 million dollars. The headline says all you need to know “MicroStrategy Adopts Bitcoin as Primary Treasury Reserve Asset.”

Quoting from the press release;

Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders,” said Michael J. Saylor, CEO, MicroStrategy Incorporated. “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… MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.

…Our decision to invest in Bitcoin at this time was driven in part by a confluence of macro factors affecting the economic and business landscape that we believe is creating long-term risks for our corporate treasury program—risks that should be addressed proactively…We believe that, together, these and other factors may well have a significant depreciating effect on the long-term real value of fiat currencies and many other conventional asset types, including many of the assets traditionally held as part of corporate treasury operations.

…MicroStrategy believes digital transformation has quickened amid rapidly shifting market requirements. These dynamics have many corporations rethinking their offerings, operations, and systems, as well as their balance sheets and financial strategies.

I cut out the bull thesis for Bitcoin in the press release, as it should be obvious why people own it. That’s not the important part. The important part is the part I bolded—Bitcoin is now the Primary Treasury Reserve Asset. Read that again, but focus on the word “Treasury.” This is blatant heresy against the US Dollar, the sort of thing that gets CFOs excommunicated. MicroStrategy isn’t just saying they are making an investment; they are saying they are leaving the US Dollar behind.

Now, I’ll admit MicroStrategy isn’t a leading US firm. It’s actually somewhat forgotten, living off past successes. Then again, at over $1 billion in market cap, it isn’t exactly a penny stock either and $250 million in Bitcoin is enough to get every senior tech executive’s attention.

Here’s the most interesting part, MicroStrategy traded up on the news. Sure, they announced a Dutch Tender, but that’s capped at $140 a share and MSTR closed Friday at $146.63, well above the $123.62 closing price before the announcement of the tender or the Bitcoin purchase. Do you think a bunch of tech CEOs, flush with stock options, while hoarding depreciating US Dollars aren’t agog at this? I guarantee you they’re all discussing MicroStrategy at weekend BBQs. MSTR shares are up almost 20% on the news that they bought a quarter billion worth of Bitcoin. This is before the stake has even begun appreciating. I guarantee you that on Monday, board memos are getting sent out and committees are being formed to “investigate Bitcoin as a treasury asset.” FOMO is a very powerful motivator and Corporate America acts as a herd. No one wants to be the first and get a class-action lawsuit. At the same time, tech leaders are all self-styled “visionaries.” Will they let long-forgotten MicroStrategy get all the praise for extreme foresight?

If you don’t think a tidal wave of money is about to come into Bitcoin, massive money, much bigger than mere money laundering and retail trader money, you haven’t been paying attention. I don’t know how insane this bubble will get, but you can risk only a few percent to find out. This week’s MicroStrategy press release just legitimized every corporation, endowment and pension fund’s inner desire to go speculate in Bitcoin. Many will take up that urge.

Disclosure: Funds that I control are long GBTC and Bitcoin futures.

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