MicroStrategy Adopts Bitcoin as Primary Treasury Reserve Asset
ir.microstrategy.com"[We] spent months deliberating to determine our capital allocation 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. Those macro factors include, among other things, the economic and public health crisis precipitated by COVID-19, unprecedented government financial stimulus measures including quantitative easing adopted around the world, and global political and economic uncertainty. 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."
Wow.
I can totally believe how Bitcoin, Ethereum and the rest of the cryptocurrency space could go through another bubble (the last one was quite small if you compare it to the DotCom bubble and consider how much money is floating around nowadays).
So I can imagine that this will turn into a big profit for them but the arguments are hilariously weak.
Granted they will get a lot of PR out of it.
Hilariously weak? I think they lay out a reasonable argument considering the amount of debt around the world and the fragility of the economy. The big question is: will we have deflation or inflation? I am not sure, but I doubt the USG will let itself go bankrupt.
"I doubt the USG will let itself go bankrupt."
The federal government cannot go bankrupt. In theory the government can default on debts, but in reality there is never a situation where the government would be forced to do so (it is always due to political dysfunction) -- as others have stated the US government is able to issue more money whenever it needs to do so, and thus can always satisfy any monetary obligations (though there may be negative consequences to doing so). Even if the government does default on its debts, it would not truly be bankrupt, because bankruptcy means that some higher authority has stepped in to decide what will be repaid and how, but the federal government is the highest authority. Likewise for the states, which cannot issue money but which cannot actually go bankrupt (as they have the authority to decide what obligations to meet or to fail to meet), something which has become relevant due to the enormous cost of dealing with COVID.
I think that was the grandparent's point. The USG can always issue more currency and inflate away the value of its debt. Doing so is preferable to default (and the fiscal & political crisis that would bring), and so they will. Thus, we're going to get more inflation.
There was nearly a technical default just last year, and the US has actually defaulted on its debt in the past. Politicians do not always behave rationally.
We watched one of the US political parties threaten default at least three times in the past 12 years.
I think creating political/fiscal crises is part of the point.
I had no idea. Where can I learn more about this?
Are you sure they threatened to default of _Treasury_ instruments?
Yes.
And while the mainstream view is that Ryan/Boehner never really intended to go through with it because they knew the consequences, a sizable contingent of congresspeople & conservative pundits wanted to go through with it just to show that "they meant business".
https://en.wikipedia.org/wiki/United_States_debt-ceiling_cri...
My perspective, when people tell you what they'll do, believe them. It would be economic equivalent to setting off a nuclear bomb in the middle of the country, but :shrug:, it would own the libs.
Basically it came down to a refusal to raise the debt ceiling, which forces the Treasury to take "extraordinary" measures to meet debt obligations. In several cases the Treasury was warning that they were running out of such measures and that if the debt ceiling was not raised there would be a default.
Defaulting is a much better word, I shouldn't have used 'bankrupt'. And I agree with you, I think it's a nearly impossible for the USG to default on its debt, even temporarily. The only situation in which that can happen is through insane administrative fuckup, but that's not likely.
Correction: the world won’t let the USG go bankrupt. American generals won’t just stand down, disband their forces, and turn in their boots. If the USG goes bankrupt a massive war will breakout. In the business world things have been going pretty well so if more taxes become necessary to prop up the USG they will happily oblige.
I agree with what you are saying, but even before that point, the USG which is sovereign over its money supply, will be able cover any liabilities it has by creating the necessary money. This is what I was alluding to when I mentioned that the USG won’t let itself go bankrupt. They will destroy the USD before going bankrupt, because the repercussions of going bankrupt are much worse than a lower valued USD. Also, the whole debt ceiling is a charade; the FED can and has monetized treasury debt without any fuss.
Inflating the debt away would actually be the opposite of bankruptcy.
> go through another bubble
I don't know. I remember a few years ago when people on reddit would get excited when some cafe in Bratislava or wherever started accepting bitcoin, or when Steam started accepting bitcoin. Now cryptocurrencies seem... boring. I see lots of people talking about "store of value", but actual use of bitcoin for what it was intended seems to be decreasing. And now people who want to gamble can just buy NKLA or SPCE or options on zero-fee brokers, which weren't a thing when bitcoin hit all-time high.
This is just my impression as an outsider, of course.
All of the previous Bitcoin bubbles were driven by by new, larger group of people discovering it, and driving prices higher. Hence, any new bubble would require such a new group of buyers to appear. The question is whether that group even exists. Because in 2017 Bitcoin, arguably, went as mainstream as it could go with full-on regular MSM coverage, and most people seem to have heard about it by now. So, who is there to buy, and drive prices even higher as long as its utility stays the same?
Do you use Bitcoin? No? Then you're part of the group of new buyers.
Don't think you ever would? Opinions can change rapidly when you're struggling to buy food.The article's thesis isn't really that the utility of Bitcoin will increase, it's that the utility of the dollar (its primary competition) will decrease. If your dollars will be worth half tomorrow, it's a no-brainer to get rid of them ASAP and put your money in a currency that isn't being printed rapidly.
Were you a Bitcoin user? Yes, then you won't be a buyer this time around. I will not be putting money in, but I will happily make the bags of others lighter. Of another hype bubble materializes, I will be extracting more of the free money Bitcoin Network printed.
In the states, using crypto is a taxable event. Until that is changed, they can only be stores of value, not currency, as I have no interest in recording every transaction with the IRS. I don't see a differentiation within cryptos coming from USG, so the crypto ecosystem can only be one or the other?
I think a store of value is exactly what MicroStrategy (and other large institutional buyers of crypto) are looking for right now.
If it gets to the point where people will be calling on their Bitcoin reserves, the IRS will no longer be a going concern, at least one that anyone will be paying attention to. It's insurance against the collapse of governments, and so any government regulation other than ones affecting its storage & ownership aren't relevant.
Note that places where the local currency is actually collapsing aren't seeing much cryptocurrency adoption. In Argentina people just buy USD. In Zimbabwe people were using equities in the local stock market as hedge against inflation [1].
[1] https://www.bloomberg.com/news/articles/2020-07-06/for-zimba...
Compared to what.
> who is there to buy
Pension funds and other financial institutions. These were either locked out or didn't believe in bitcoin. If you were a Pension fund now you're probably keeping an eye on the space to help your returns.
That belief is summarized in the crypto scene as "the herd is coming".
Last bubble they didn't, this time, we will see.
The counterargument to this is that IF people are willing to pay for something, they must care about it. For both Bitcoin and Ethereum, the amount of money people are willing to pay in fees to propagate on the network are extremely high at the moment... so in theory at least, somebody thinks these networks are "worth" using, or they wouldn't spend this money.
>For both Bitcoin and Ethereum, the amount of money people are willing to pay in fees to propagate on the network are extremely high at the moment
Just to add here, the transaction fees you have to pay are highly variable, see chart fee chart for the last 30 days[1]. As of this posting the market clearing rate for a typical transaction is about 0.000325 BTC[2], or around $3.73. However, a few hours ago it was as low as 0.000005 BTC for a typical transaction, or around ($0.058).
[1] https://i.imgur.com/FYpGpES.png
[2] a random google search says a typical bitcoin transaction 250 bytes. this is a different unit than the one in the linked chart, which uses satoshis (0.00000001 BTC) per byte.
Ethereum is the one that is generating more fees right now. 3.6M just in fees yesterday
https://coinmetrics.io/charts/#assets=btc,eth_left=FeeTotUSD...
That isn’t necessarily true... people also buy things if they think OTHER people care about it.... they think someone else will buy it from them later for a higher price.
Don't look at Bitcoin. That hasn't changed much and not much interesting stuff (besides some drama) goes on there.
Look at the Ethereum space. That's where most of the action is these days. DeFi (Decentralized Finance) is the current hype. The ETH2 phase 0 is projected to go live later this year (this time for real :-). 60% of Tether is an ERC20 token now. etc.
Oh, and if you are interested in drama and have missed it, look up the Quadriga story. That story is so unbelievable whacky, no screen writer would have been able to come up with it.
IMO, "boring" is exactly what Bitcoin should be right now. It's becoming normal.
Ethereum does have a lot of really interesting things going on that are super cool. But I wouldn't take this to mean that Bitcoin isn't developing or that it has somehow become stodgy or less relevant.
Bitcoin's developments are more the field of payments, decentralization, and privacy. These parts are not flashy, but are absolutely fundamental for its usability as money and store-of-value in the future.
The biggest differentiation though is that Bitcoin has an explicit inflation rate while Ethereum actually has no specific monetary policy at all. It is up to the devs and its scarcity could be undermined.
They're both extremely interesting for different reasons, but for those of us who got into crypto through economic reasoning about the gold standard, scarcity, government control of the money supply, etc. - the things many have seen for a really long time as the problems at hand - Bitcoin is by far more directly addressing them.
It's "boringness" at the moment means these objectives and economic motivations are becoming more agreeable.
> Don't look at Bitcoin. That hasn't changed much and not much interesting stuff (besides some drama) goes on there.
No. Look at Bitcoin first.
If Bitcoin fails altcoins will most certainly fail too. There is a reason why Bitcoin does not change that much, it has to be safe and trusted for storing value. It is not a "move fast and break things" project.
> Look at the Ethereum space. That's where most of the action is these days. DeFi (Decentralized Finance) is the current hype.
Bitcoin is DeFi (Decentralized Finance), if anything.
OP already looked at Bitcoin but as that is moving slowly, I pointed them in another direction where more stuff is happening.
"Finance" is much more than just payments or store of value. Bitcoin is way behind Ethereum in that regard.
Of course, that doesn't matter if you don't think that decentralized finance makes sense to have.
What is ETH2 and why should I care about it?
Ethereum + proof of stake + sharding. Right now every node on the Ethereum network validates every transaction using a similar proof of work system as Bitcoin. This creates a transaction bottleneck; I believe Bitcoin can do something like 7 TPS, Ethereum about 11, which is woefully inadequate for a global financial system (for comparison, I believe Visa does something like 20,000).
Proof-of-stake replaces this massive electricity waste with game theory. Every validator must put up a deposit (in ETH) to participate. If it cheats, it loses that deposit. The damage it can do to the network is limited to less than the deposit. Therefore, it's never profitable to cheat - and so they won't, or if they do, they will go bankrupt, remove themselves from the network, and self-limit the problem. And transaction validation can now be split among thousands of nodes (instead of having those thousands of nodes all validate the same PoW), which means the network can scale to tens or hundreds of thousands of transactions per second.
Sounds like a better approach. Do you think Bitcoin (BTC) will go down this path too?
Bitcoin has a cultural bias to being conservative. Their selling point is that they were the first cryptocurrency, the Bitcoin network has never been hacked (even if individual exchanges or wallets have), and so they are a much more stable and dependable store of value. In the past they've been quite resistant to fundamental changes in how the blockchain works.
I'm pretty excited about Ethereum precisely because they're willing to experiment and rethink everything about their approach. I do suspect that soon after ETH2 is launched we will see a high-profile hack that steals everyone's ETH and requires a complete rollback of the network.
The bitcoin network is much too slow for real economic behavior. I don't understand this, but then I've been ignoring bitcoin for a couple of years. Did they change the proof-of-work requirements? (If they did, they're just competing with other fiat currency)
"Could"? We're already in a bubble. Most notably, the Bitcoin price rally coincides with Tether printing out $10B of their "stablecoin", fully backed with what very much appears to be nothing at all.
Here's a primer from HN's very own patio11, from back in late 2019 when they had only printed $4B: https://www.kalzumeus.com/2019/10/28/tether-and-bitfinex/
This has been debunked time and time again, at this point you are just shitposting.
It seems to be a common sentiment but the general business people can't completely back it with macro data so everyone just brace for impact... I assume these folks have actual intel to take this big decision.
>I assume these folks have actual intel to take this big decision.
They sure write like they do. But they act like gamblers hoping for the next big score.
>They sure write like they do. But they act like gamblers hoping for the next big score.
Sounds like wall street
What if sentiment is blue-pilled and holding dollars is actually the gamble? You would be holding the wrong side of the stick.
I would agree that dollars have little downside but the purchasing power degradation of dollars feels like a irremediable tax on savings. And hard money like gold, silver, Bitcoin or Ethereum a quite decent hedge.
==And hard money like gold, silver, Bitcoin or Ethereum a quite decent hedge.==
Two of these things are not like the others.
>What if sentiment is blue-pilled and holding dollars is actually the gamble?
Even if you have no confidence in the dollar, doesn't mean Bitcoin or crypto currencies are a good alternative.
>And hard money like gold, silver, Bitcoin or Ethereum a quite decent hedge.
That is a strong statement. There is no evidence that crypto currencies are a 'decent hedge' for anything.
>I assume these folks have actual intel to take this big decision
I assume it's "Our advisors can push mutual funds, they will be able to push trusts with the same fee structures and incentives to sell that hold an asset that has 10Xed before."
That alone seems like enough.
Let's say you don't believe BitCoin. If you have worked in finance, or had a financial advisor come to your company, you probably believe in their ability to sell.
People still think financial "advisors" (Series 7/63, CFP) know something / have interests besides pushing mutual funds.
>I assume these folks have actual intel to take this big decision.
Short of a crystal ball I don’t see how
> I assume these folks have actual intel to take this big decision.
Unfortunately, my experience working with MSTR has been that the expectation of competence isn't really born out in actual competence at a technical level.
I suppose you can only hope that at a management level it's a different story. They certainly seem to sell their product very well.
wasn't quanatative easing done for like a decade after tbe recession with no inflation? why is there any reason to think this time around will be different? scale?
No inflation? Look what new money has bought and you will clearly see huge inflation: stocks and housing.
We don't see shopping cart inflation because it's countered by the technological cheapening of the production. And the key fact that new money is not being given to people buying groceries.
I never understood how anyone can find it remotely fair for the Fed to introduce new money into the economy by any means other than equal division between all citizens.
The flip side is somewhat problematic: if the Fed needed to remove money from the economy (e.g. because inflation exceeded the target rate), they would have to take money away from everyone equally.
It is easy to forget that the Fed's mission is to stabilize the value of money, not to conform to some concept of fairness. I would also point out that instability in the value of money disproportionately impacts the poor, who have the least savings available to deal with price shocks (if you are living paycheck to paycheck, then the price of bread suddenly doubling will leave you eating half as much bread).
Thing is, we already have a mechanism for removing money from the economy that isn't controlled by the Fed - taxation. If there's too much money, you can always increase taxes.
The difference is that taxation is subject to political forces, and politicians may not be able to pursue an unpopular policy that stabilizes the value of money. The Fed is mostly immune to short-term political needs and often pursues unpopular actions to meet its objectives.
Is there a reason that congress couldn't bestow upon the Fed some powers of taxation, while still leaving it free of the political constraints that the legislature faces?
I do not know what the law allows, but in principle a government could give such power to its central bank, and there is some precedent (the ancient Romans had a system of private tax collectors, who would basically pay the government for a kind of license to collect taxes). I am not sure there would be much of a point, since the Fed can always raise interest rates, which has the same effect on the supply of money and ultimately affects the general population in the same way (you are left with less money to save/invest/blow on parties). Taxation is somewhat more direct e.g. higher property taxes have to be paid immediately whereas a fixed rate mortgage will not suddenly become more expensive when interest rates rise, but in terms of stabilizing the value of money it does not make much of a difference one way or the other. The fact that taxes are more direct actually makes taxation the preferred tool of politicians, who typically resort to tax cuts when they are desperate for votes or propose taxes on the wealthy in order to rally support from the working class.
The difference between taxation and rate hikes is that taxes are generally progressive, while rate hikes being progressive or not depends on a lot of factors (but they can be). Taxation is a much more precise tool than rate hikes.
Again, the Fed's mission is to stabilize the value of money, and progressive tax is no better at accomplishing that objective than a flat tax. Progressive taxes may be something that people like you (and me) think are a good idea, but that is a political consideration, exactly the sort of thing the Fed is supposed to be immune to.
As for taxes being "precise," that is an interesting claim. The US tax code is not even remotely precise, in fact it is hard to know what you are supposed to pay in taxes for the first paycheck of the year (your bracket could change unexpectedly). Our income taxes are progressive, but the wealthiest Americans pay little in income tax because their "true" income comes from their investments. We have the AMT which is meant to take care of that, but the AMT has not been properly adjusted for inflation and so a bunch of middle class families are stuck paying it, even though those families also pay income tax at a higher bracket than the wealthiest households that AMT was supposed to target. Then there are the countless things a person can get credits for -- children, particular kinds of business income, charitable giving, state and local taxes, etc. -- that result in people with the same income level paying wildly different taxes from their peers. Investment income is taxed, but losses can be carried forward, and some investments are taxed in a totally different way, some can also be carried backward (see Section 1256), etc.
On some level it is "precise," but in practice it is a mess that gets more difficult to work the more "established" you are in life (bought/sold a house? got married? have a new child in your life? finally made enough to contribute to a retirement account? get ready to do a bunch of paperwork to figure out what you are supposed to pay).
Taxes, as an instrument, are multiple orders of magnitude more precise than rate hikes. Whether it is implemented well or not is an implementation detail. As a matter of essence, taxation is more precise than control of the directive rate. It is possible to wield taxes in ways that create confusing effects, or in a clear, concise way.
As for what the Fed is supposed to do, in practice, the Fed does much more than simply control the amount of money. The responsibility of the Fed is to control monetary policy and to maintain the health of the economy by doing so. Which is why they have such an important role, right now, in preventing the complete collapse of the US economy.
What about government contracting? Is it a fair process to decide who builds a highway?
The Fed's activity is what drives the government's ability to pay it's contractors.
Why conflate regulation of the money supply with the ability to hire contractors?
If you want to increase the money supply, print some money and give it out.
If you want to fund highway construction, figure out how much it will cost and then raise that amount of tax revenue to pay the builders.
That is a very naive view of how things work. (Though I agree that that is how things should work)
Well, we _are_ having a conversation that's all about how we think the system should work...
The Fed introduces new money into the economy through two major mechanisms: setting a target interest rate on overnight loans, and buying assets at market rates. It's not clear how either of those would be extended to an equal division between all citizens, the vast majority of whom don't want overnight loans and don't have financial assets they want to sell.
> "and buying assets at market rates."
Without sarcasm, given the latest purchases of assets beyond Treasuries and MBS, why do you think the Federal Reserve has purchased assets at market rates?
It's my understanding that their asset purchase programs involve just buying things normally on the open market. It's of course a bit more complicated than "market rate", since large purchases marginally affect the price, but as far as I know nobody gets a special deal where the Federal Reserve pays 1.5x what the bonds are worth.
Hence why they shouldn't do it.
It seems unfortunate to give up a useful tool for managing the economy just because it can't be structured to provide everyone an equal amount of benefit. Should we end small business programs because not everyone's wealthy enough to own a small business?
I'd see the problem if it worked how I've sometimes seen it described, where rich people and banks are just getting free gifts of cash, but that's not accurate.
I don't see why it's unfortunate if there's an equally good tool that is more egalitarian.
Congress could give the Fed the power to, rather than just buy bonds (or whatever it is they do) introduce money to the economy simply by giving everyone money.
I understand that it is not exactly true that the rich are getting free money for nothing. But the whole reason we're talking about this here is that someone pointed out that all the new money supply from the Fed is finding its way straight to people and corporations that don't have anything better to do with it than buy assets, the prices of which continue to grow as a result, even while the GDP rate is plummeting.
Lastly, I'm totally open to the idea that someone will come along and explain to me why my idea for how the Fed should give everyone money is just not workable. If that happens, I'll be happy to have learned something useful. But it's definitely not clear to me, a priori, why it wouldn't work if it wouldn't.
>I'm totally open to the idea that someone will come along and explain to my why my idea for how the Fed should give everyone money is just not workable.
Congress has this power, and can always use it. The fed doesn't have this power, and that's because a bunch of unelected bankers aren't supposed to be making political decisions about wealth distribution.
Read up on the difference between fiscal stimulus and monetary stimulus...it's impossible to have an intelligent discussion on this subject without knowing how those things differ.
Fiscal stimulus is when the state pays money that it already has (or that it borrows for the purpose) into the private sector so that private entities will have cash and engage in spending.
Monetary stimulus is when the central bank increases the supply of money in the economy to control the value of a unit of currency as measured relative to units of goods and services, which in theory can have similar effects on people's spending behavior.
Either can be done with any degree of fairness or unfairness. And neither necessarily has to be done by the mechanisms through which the world's governments have historically tended to do them.
I agree that I don't want a few unelected central bank officials making decisions about wealth distribution. That doesn't mean that congress can't specify a different mechanism for them to introduce money into the economy.
> Should we end small business programs because not everyone's wealthy enough to own a small business?
The job of financing ventures should be done by private parties and the banking industry, not by government, but since they are too preoccupied chasing assets with cheap money they can't be bothered to.
This is just another way of saying “the Fed currently only introduces new money by ways that benefit certain corporations and wealthy people”. Just because they only do those two things doesn’t mean they couldn’t do other different things like just sending people more checks.
The Fed just buys debt...the closest thing to giving away money they can do is nudge someone's interest rates lower or make a loan easier to get.
Congress decides how the money is distributed when they're spending it.
Congress created the Fed and gave it what powers it has. They (assuming a consensus among legislators) could totally have given it a different mechanism for controlling the money supply. Even one that culminated in a check being mailed to every citizen.
But if there's special kind of inflation that doesn't hurt people's ability to buy goods and services, does that really matter?
If it hurts their ability to invest in assets, then yes. Assets tend to appreciate over time and represent an excellent store of value. Taking that option away from people matters very much.
I'm not sure I see how an increase in the value of assets hurts people's ability to invest in them.
Some assets are indivisible, so increasing value makes it unaffordable. You can't buy a fraction of a house.
For things like stocks, if the increased value is driven by inflation, you get less for your money. So it takes more money to store the same amount of value there.
Actually you can buy a fraction of a house:
You can even buy a fraction of a house on ethereum! https://realt.co/
Can't really live in a REIT though.
No, but the question was about assets, not housing. A house you own is an asset but your housing arrangement may not be (e.g. if you rent). So for example, a person might rent a place to live in and invest in a REIT to build real estate equity (assuming they specifically want such assets) if they cannot afford to buy an entire house (e.g. if they do not have the money to make a down payment).
> You can't buy a fraction of a house.
Isn't that basically what a REIT is? It's also possible to enter into joint ownership of a property. Roommates are also kind of like acquiring a fraction of a house.
==Roommates are also kind of like acquiring a fraction of a house.==
Unless you rent, in which case you are acquiring a fraction of the liability without acquiring any house.
Because oddly enough, you can't buy classic cars as investment if you don't have the money.
If assets appreciate faster than wages rise, it creates price-points that are too high for people to invest.
CPI includes housing. Most Americans have seen minimal inflation over the last decade.
I'm not an expert, but it seems to me the way CPI imputes the cost of housing and several other things is broken. It looks like most Americans have seen much more inflation in the cost of housing, healthcare and education than the CPI would have you believe.
It includes housing in the form of rent (imputed rent in case you own the house). OP was talking about housing as an investment (like stocks), which is not covered under CPI.
Inflation has moved from product prices to asset prices. Just look at the stock market.
No, if you look at shadowstats, the house/rental prices, or the Big Mac index, you can see that there was significant inflation in the past 50 years. Governments are changing the measurement of the inflation to try to hide it.
My favorite ShadowStats statistic is that their own annual subscription price has remained unchanged at $175 since at least 2006, during 14 years of supposedly rampant inflation: https://www.pragcap.com/update-theres-still-deflation-in-hyp...
It caused inflation in assets, not in goods.
Also look at art prices. The money was going to certain places without ending up in the hands of the every day people.
Because now money is given directly to people due to covid. Before money just went to wall street.
Scale indeed.
If most assets are still rising and breaking all time highs in a downturn economy what it really means is that the dollar is falling in a race to the bottom with all other fiat currencies.
People avoid holding money by buying stocks and housing, not because of natural P/E ratio but forced by the continuously devaluation of cash.
What "money" do you expect businesses want to hold in this situation?
Businesses almost certainly won't be holding cash in quantities any larger than necessary to meet their short-term obligations.
The entire purpose of QE and similar schemes is to reduce the value of the fiat currency relative to other things, in order to encourage people to swap their dollars for things (increasing consumption) or financial assets (increasing investment, at least indirectly).
The problem is that the investment doesn't seem to be happening, partly because of expectations of a future crash. By this point I suspect this has more to do with real-world factors (climate change is a serious obstacle to long-term economic growth) than government policy.
The interesting thing is that stocks and real estate were traditionally considered difficult things to protect. For example, without the US military, many global businesses wouldn't exist. It's basically like the US citizens paying taxes so that stocks are safe investments for the richest of the world.
Any commodity could be held.
If we look back half a century in the US, the commodity held was gold. Or rather, federal reserve notes redeemable for gold.
Gold makes a good currency as it has the properties of a commodity that makes a good currency. It is durable, divisible, uniform, and portable.
Federal reserve notes a half century ago were even more portable. You could mark the bills or write down serial numbers and make the bills difficult to use if stolen. If torn, the Federal Reserve would issue you new bills.
Money or currency historically has been a commodity that had the above mentioned properties (durable, divisible, uniform, portable), so that it is convenient for trade. Really any commodity could be held to store value, although some store value worse than others (perishable food is not exactly durable).
When you get into very large sums which you may want to transfer around the world in a split second, you run into more of a problem of course.
At this point in time, I believe that "investing" in Bitcoin is, in fact, a short in the dollar (for Americans).
Decentralized Finance (DeFi) is the green shoots of a new and innovative financial system. It will break, it will be hacked, but longterm I believe this is the direction of finance - borderless, global, instant, peer to peer. Artificial barriers / borders / regulations simply don't matter when the mechanism for such transfers and investment are unstoppable and permission-less.
Look at Compound Finance - $2 billion+ in assets deposited and over $1 billion borrowed https://compound.finance/markets
This can't be stopped - and there is no government regulating it!
The problem with Compound is that lenders and borrowers are rewarded with a utility token which is more valuable than the interest on the loans. This creates the opportunity where you can lend money and borrow money collateralised against that loan over and over again.
I am also optimistic about the long-term value created by DeFi and the new business models it will allow. But for now I think the sole reason it exists is because people use it to get leverage for speculation.
A lot of modern finance fulfills that need. Give it time, and it will also be used for productive capital formation in a bigger way.
This company apparently was/is quite cash rich. It bought back $250m of its own shares and then bought 250m of BTC... wow.
Does anyone have the wallet address? or pinpoint it?
There is high chance that the 21K+ bitcoins are spread out over multiple wallets. Most likely hardware wallets, spread out over multiple geographical locations. I also don't see what the benefit would be for MicroStrategy to publish a csv files with all their wallet addresses.
Even more likely a custodian like Coinbase or Gemini already has the funds in cold storage, and a sale occurred OTC which simply modified who owned how much of the BTC.
True, this is even more likely than the scenario I spelled out.
It could also signal that they're unable to deploy capital to innovate (and bring future cash flow).... MicroStrategy has been an acquisition target for many years.
This is also my take, bad capital allocation.
As a shareholder of any company, I’d be extremely wary of outlier moves in mechanical business areas like cash management. Maybe there is something real going on there, but holding egads of cash and then putting it in a (by market-cap) fringe alternative is a weird move. It’s maybe interesting, but I’d be highly skeptical, it’s like seeing smoke... I want to find the embers...
MicroStrategy moves its cash into Bitcoin; shares up 9%
Oh go home 2020, you’re drunk.
AFAICS, Bitcoin has a deeply flawed long-term security model.
Its block reward, which constitutes a subsidy for its security budget, halves every four years.
Unless the halving of the security subsidy is made up for by additional transaction fees, Bitcoin's security decreases.
Given that Bitcoin blocks are full - with only a little space left for further optimizations via SegWit adoption and Schnorr signatures - transaction volumes cannot appreciably increase, and thus the only mechanism by which total transaction fees can increase is by the average fee per transaction increasing.
I can't see any way for transaction fees to ever reach the fantastical sums (e.g. $2,000 per transaction) needed to keep Bitcoin secure when the block subsidy becomes insignificant.
This wasn't the case back in 2015 when Bitcoin still had the hope of undergoing a hard fork to raise the protocol limit on its block size, which would have enabled it to increase the volume of transactions it processes by orders of magnitude. But now its governance structure is firmly captured by anti-hard-fork parties, so I see no long term viability in its protocol.
Bitcoin's security does not need to keep going up indefinitely. It will reach an equilibrium where tx fees will be paying for the entire security of the network. As the block size is capped, there will be a market for fees.
Hard-forking to remove the block size limit would have profound consequences for the decentralized nature of bitcoin - arguably its most important characteristic.
Assume a block size limit of 4MB.
The minimum transaction size is 166 bytes.
This gives us maximum 25266 transactions/block.
The current block reward is 6.25 https://blockchair.com/tools/halving-countdown
This is worth about $72,000 USD https://duckduckgo.com/?q=6.250+BTC+to+usd&t=canonical&ia=cu...
This means that, to match current security without block rewards, transaction fees would need to rise by at least $2.84/transaction.
Plucking a number randomly from a real-world point-in-time snapshot of https://bitcoinfees.earn.com/, I see a suggestion of ~150 satoshis/byte, so for your example, transaction fees for an ideal/max size block would be 600 million satoshis = 6 BTC, which roughly is about the same as the block reward.
Needing to roughly double the status quo transaction fees to make up for lack of the block reward in order to provide equivalent security, doesn't seem ridiculous to me at all. And this is the worst case scenario (i.e. the reward will go from 6.25 to 0 slowly, but it can't go negative).
Where does 4 MB come from?
The average block size right now is 1.2 MB (the 0.2 MB because of SegWit). Assuming SegWit adoption increases to 100%, we get 1.6 MB.
The average fee on a transaction would need to rise $7.47 to match the post-halving's new, lower, security budget.
The average value of a transaction would need to double to make an average transaction fee of $14 (the current average fee of $6.50 + an increase of $7.50 to cover the loss of the security subsidy) economical.
But the doubling of value flows would make the current $security budget less adequate, so even less suitable for reserve currency usage.
And if the price increases, as Bitcoin investors hope it will, value flows would increase further, requiring an even larger security budget and average transaction fee.
At some point's further utilization and appreciation will be arrested by the diseconomies of scale caused by rising fees.
4MB is the theoretical limit with SegWit, if you are constructing a block specifically as big as possible. In practice, you will probably never see a 4mb block (and if you did, it would not be composed of minimal transactions).
My calculation was looking at a lower bound for needed transaction cost.
My point is that with a limit of 300,000 or so transactions a day, Bitcoin's average transaction fee would need to be extremely high to match even the current security subsidy, much less one communsurate with a global reserve currency.
I don't see any reasonable case for the prediction that Bitcoin's average transaction fee will reach those extreme highs.
>Hard-forking to remove the block size limit would have profound consequences for the decentralized nature of bitcoin - arguably its most important characteristic.
I didn't say "remove". I said "raise".
> I don't see any reasonable case for the prediction that Bitcoin's average transaction fee will reach those extreme highs.
Why not? At scale with current block sizes Bitcoin would probably be settling payments of institutional-level transfers, state money management, and 2nd-layer networks like Lightning. Individual transaction fees would be high but they would represent aggregated fees for millions of off-blockchain transactions.
The fees wouldn't likely be paid by everyday users at that point.
Because there is no market demand for it? Why would people pay thousands of dollars to transfer value? Value transfer will get less expensive with the proliferation of e-money, not more. Why would institutional players choose something so expensive?
Because it won't be expensive.
Visa does something like $11 trillion in volume per year. Why does anybody use that if visa takes 1-2%?
1% of 11 trillion is 110 billion. With that amount of fee revenue you'd be able to secure the Bitcoin network 12,000 times over.
So Bitcoin's security is able to grow by 1,000x and still cut prices relative to current popular providers by 12x.
That's cheap, not expensive, and that will lead to demand over time.
Visa can charge those fees because are no alternatives to Visa. There are alternatives to Bitcoin. It doesn't have a network of hundreds of millions of accepting merchants spread all around the world, and never will, because it can't process a meaningful volume of transactions per second:
In contrast to Visa, which can process 3,000 transactions per second, Bitcoin can only process 3 per second.
Limited, even during peak demand, to 1/1000ths of Visa's average throughput, and 1/10,000ths of Visa's peak usage throughput, there is also no way Bitcoin can match Visa's $11 trillion volume.
Mastercard is a competitor to Visa.
2nd layers for Bitcoin can scale to many thousands of transactions per second.
Maybe CryptoPunks would be a store of value more your style ;-) https://www.larvalabs.com/cryptopunks
Since they rely on Ethereum's healthy and growing fee market, which provides it with a viable long-term security model, yes.
It's just crazy how flush with cash some SaaS companies are. With a current ratio of 2.8 (cash over short term liabilities) it's no surprise they want to diversify a bit.
I see shareholder lawsuits on the horizon if this does not work out.
It worked out for Shkrelli's investors. He still went to jail.
I feel conflicted by this expectation from people that bitcoin will continually grow ad eternum, just because the supply is limited.
I'm a believer on cryptocurrencies, but bitcoin being a first generation project, still has several pitfalls, such as transaction throughput, slowly trying to be addressed by other projects. What happens when people start flocking to ethereum, cardano, eos, or something else? Will it retain demand?
Maybe it will, considering that gold is almost as worthless, and it's still used as a major hedge against financial turbulence. But it's something to keep in mind.
It’s not the Bitcoin will continue to rise, it’s that the dollar will continue to fall. All currencies eventually become worthless.
"What happens when people start flocking to ethereum,"
might be an issue with it's completely unverified supply. Eth might work as currency of sorts but not as an asset to hold.
Their stock has risen 12.4% today so far (NASDAQ: MSTR)
It’s so crazy that it might just be completely crazy. Behaviour that is grounds for an investigation by shareholders.
In a world where the governments can’t support their own currencies, nobody will give a shit about Bitcoin.
“I don’t trust the real hospitals because of medical negligence, better get my amputation done by that guy operating out of his garage just to be safe.”
BTC is fully accountable while it's issuance is not in the hands of any certain group. Therefore it has a permanently predictable rate of inflation that is much lower than fiat currencies at the moment.
Nobody has to trust anyone, that's the whole point of bitcoin.
it has a permanently predictable rate of inflation
It’s volatility would suggest otherwise. As many others have commented here an in other places, the fact that supply is predictable is not enough, demand is a factor too.
Inflation rate means the rate of issuance of new coin. Its price is related to whatever free market forces decide the price of anything scarce such as gold, silver, fiat currency, etc.
In economics the word inflation refers to the rate of change in the buying power of a currency.
What you’re talking about is the money supply (I guess the Bitcoin equivalent of M2) which in Bitcoin is for some reason increased at a hard coded (decreasing) rate.
Except you have to trust lots of people for Bitcoin to work, from DNS record holders to developers to intermediaries and beyond. The whole system is dripping with trust, so why not just use standard currencies?
False, you do not have to trust anyone. You decide what code you run, not developers. As far as DNS goes, you should study the bitcoin consensus protocol in more detail.
https://bitcoin.stackexchange.com/questions/2027/how-does-th...
Do you trust whoever happens to own xf2.org more than you trust a central bank? Do you trust the domain name registrar more than you trust a central bank? Why?
You decide what code you run, not developers well, sure you can run whatever code you like on your machine...the Bitcoin devs get to decide whether your software counts as a Bitcoin client or not. They are in a position of power and you must trust them.
You should read more about how the Bitcoin consensus protocol works.
The consensus protocol doesn’t help in removing either of these trust requirements?
If I own the mechanism of root node discovery, I can mount an effective Sybil attack against a new network participant.
The history of Bitcoin is full of hard and soft forks and changes to the rules. That’s why your original Bitcoin client wouldn’t even let you join the Bitcoin network now. The people in control of the network are in a position of immense power with minimal oversight. So on what basis should I trust them with my life savings? What recourse do I have if they ruin my life?
> That’s why your original Bitcoin client wouldn’t even let you join the Bitcoin network now.
You can run whatever client you want.
> If I own the mechanism of root node discovery, I can mount an effective Sybil attack against a new network participant.
But you wouldn't be able to replicate a chain of blocks with the same order of magnitude of work behind them. And then, even if you could, all you'd be able to do is change history, with the depth of that history dependent upon how much mining power you had available. You wouldn't be able to spend other people's money or give yourself more.
You can run whatever client you want...if it conforms to the design of the protocol.
you wouldn’t be able to replicate a chain of blocks with the same order of magnitude of work behind them...I grant you that, but does it matter? If the client can’t find the real network, how would they know what to expect? You and I would know, because we have a copy of (I hope) the real Bitcoin blockchain...but how do you acquire that knowledge without trusting an entity first?
all you’d be able to do is change history...wouldn’t that mean you could lay claim to whatever you wanted in the eyes of this poor client? Or just harness their hashing power.
If a company like MicroStrategy starts investing in Bitcoin instead of reinvesting in own business it means it has no good ideas how to generate value as a company. In other words, it doesn't believe its own business can generate more revenue than Bitcoin trade.
They may be genius Bitcoin traders, but clearly they are no longer Business Intelligence visionaries as they once were. A famous company that now admits it has no future. That's how I see it.
Yup, and their stock price since their 2000s bubble has been completely flat.Why not innovate your way to more value then rely on a fledgling technology that has decades probably to prove itself.
Here is a list of 20 companies buying Bitcoin recently:
https://www.forbes.com/sites/michaeldelcastillo/2020/08/06/v...
Keep in mind that 250 mil, and 250 mil times 20 is a drop in the $214.4 billion bitcoin market cap and doesn't move anything. Just a sign of mild interest.
Furthermore, Grayscale just ran a crypto ad campaign on large TV networks such as Fox.
It depends over what time period those 21K bitcoins were bought. If they would have been bought within a day, there would absolutely be market impact (bitcoin price would increase by double digit percentages).
The daily trade volume is mostly people passing bitcoin to each other. If a whale like MicroStrategy is actually taking them out of an exchange, things will dry up quickly.
My guess the bitcoins were bought over a period of at least couple weeks, and probably using OTC trades as well.
As far as I understand, the companies in the list (didn't check if OP's company is included) are buying from Grayscale. Grayscale has been buying up BTC and ETH for years, but ramped it up recently (I want to say Q1/Q2, but don't quote me on that).
So these orders are not hitting "the public market", it's coming from Grayscale inventory (not even that, since the companies aren't buying directly and taking custody).
Also, good point on BTC supply being less than the 21 mil cap / whatever was mined already.
Not all of that market cap is liquid. I think it is safe to assume that a least 4 million bitcoins [1] or $50 billion of value is completely lost and over time that will grow as more and more coins are lost.
You are confusing market cap with stock/asset liquidity.
I bookmarked this HN thread back when the crypto bubble popped:
https://news.ycombinator.com/item?id=18640755
Interesting to re-read this (and other) threads now that BTC is one of the best performing asset classes in 2020...
Corporate treasury speculating on currency. What could possibly go wrong?
...elaborating, a corporate treasurer might want to hold some Euros on balance sheet if they expect to have future liabilities or expenses denominated in Euros. That is a hedge.
On the other hand, a treasurer that holds Euros because they have reasons to think the Euro will appreciate in value in the future is simply speculating. And using the company's balance sheet to do so.
This is looking like a bet. A well-reasoned bet, but a bet nonetheless.
Good luck to them. They'll need it.
How is Bitcoin not just a proxy for USD?
Did you read their argument at all? The macro bet is that all the money printing is devaluing fiat currencies. Store of value assets like Gold and BTC are rallying because of this.
The USD I think buys 15% less EUR than it did pre-COVID. Similar results even if you compare it to a basket of world currencies.
USD is the only currency with which a person can pay its US taxes. Can't do that with Bitcoin.
One US dollar can not fluctuate in value relative to itself. The "exchange rate" between USD and BitCoin fluctuates continuously.
USD is legal tender. You can buy a cup of coffee anywhere with USD. Not so with BitCoin.
USD does not have a bid/offer spread for transactions. BitCoin trades as two sided market.
USD can be deposited at bank, be protected by FDIC deposit insurance, and can earn an agreed rate of interest. Not so with BitCoin.
...stopping, though this could become a long list
BitCoin is an asset that can be bought or sold in exchange for USD. So is gold (as already noted), oil, company stock, lawn chairs, tracts of land, etc. A dollar-denominated asset is not the same as its market value in dollars.
How do you figure? Is gold a proxy for USD?
Original press release submitted here: https://news.ycombinator.com/item?id=24120060
They do not care about the environment. Bitcoin contributes a lot to global warming by design.
Hydro power, solar power, wind power, these do not contribute to global warming.
Plus, Bitcoin is a valuable asset (for many people) and the reason it keeps its value is that it's safe. Energy is expended to keep it safe. That is a free market choice, and you can disagree with it, but many choose to pay for energy to protect Bitcoin.
I do not believe bitcoin only run on clean energy. Even if it was the case, this energy could have a better usage like solving actual problems instead of bruteforcing checksums.
The free market needs to be controlled when it destroys the environment. The people needs to be responsible for their actions.
Maybe, but who really cares about the environment when they stand to make some easy money?
We need to have sanctions for company and individuals that run the companies.