In the past year, many technology firms have shifted a significant part of their treasury and assets to Bitcoin. MicroStrategy, a business intelligence and analytics firm that’s listed on NASDAQ and part of the S&P 600, announced in August 2020 that it had done just that. The company purchased over 21,454 BTC for $250 million, making it its primary reserve asset – and followed up with another 16,796 BTC shortly after. Square, primarily known for its mobile payments application Cash App (formerly Square Cash) and which has significant mainstream adoption, also announced on 8th October that they had made a $50 million investment, amounting to 1% of their total assets. Let’s uncover why and how big companies like Square and MicroStrategy turn to Bitcoin for their reserves.
So what’s making these companies take the plunge and adopt what is seen by many as a volatile and unpredictable asset?
Here are the facts:
- Bitcoin’s historical mean annual return is 365.76%.
- Bitcoin, unlike fiat currencies and gold, has a programmatically fixed maximum supply of 21 million.
- Out of that 21 million, 3.79 million of total Bitcoin is already estimated to be lost forever and no longer part of circulating supply.
Bitcoin’s functionality enables it to be an immensely powerful hedge against inflation. As a store of value, it has potential similar to that of gold, while as a currency, it is easily transported across the world with the press of a button.
Desirable Properties In Currency
Throughout history, various different materials and formats have been used as currency. From plants, to seashells, to glass beads, to gold and silver, to paper currencies, we have steadily maintained an evolving system of money to address the concerns and needs in each era.
The key to a successful currency is its value when used as a medium of exchange. Collectibles and proven items of rarity, or items of high utility, are the most sought after forms of currency; this can also be translated to scarcity, as any currency where the supply could increase drastically would result in a loss of value.
When West Africans attempted to use glass as a form of currency their economy was devastated after Europeans reproduced the glass easily and used it to trade for valuable resources. Silver, although a precious metal, faced similar issues in the East.
The one material that has withstood the stand of time is gold. Gold was costly to mine, easy to work with, and relatively durable, making it highly suitable for use as a currency. Although you won’t find gold coins today, many of our systems and economies are dependent on gold. Before 1971, monetary policies were governed by the Bretton Woods system, which required signatory countries (including almost all of the 44 allied nations) to maintain their external exchange rates within 1 percent by tying their currency to gold.
Historically, this scarcity has enabled gold to maintain strong purchasing power; an ounce of gold would be $20 in 1920, but worth 100 times that amount today. As gold rose with value and popularity, few would have imagined that it was only a matter of time before Square and MicroStrategy turn to Bitcoin for their reserves.
Digitized Scarcity Is Even More Reliable Than Gold
The problem with any currency used today is that most forms of fiat currency are not only no longer tied to gold (out of a need for portability, modernization and ease of use), they’re also easily forged, controlled by centralized organizations and governments, and offer very little protection for consumers and businesses during outbreaks of crisis. The shift to paper-based currencies and non-precious metals in coins means that you can no longer trust your money to be what it is valued; the Covid 19 situation has proven just that. In 2020 alone, the US Federal Reserve has printed over $3 trillion dollars in an attempt to drive down interest rates and increase expenditure – following a strategy known as “trickle down economics”. In fact, the Fed balance sheet was only 0.8 trillion in 2008, meaning that it has increased almost 10 fold in less than 12 years.
While gold may be the first answer to these concerns, bearing in mind its history as a hedging instrument, it’s also no longer usable as a portable currency – you can’t walk around with a bar of gold in your pocket and expect not to be robbed, or to be able to cut it up into the powder-sized bits you would need for everyday payments.
Instead, Bitcoin serves as the ideal answer combining the best of modern currency with the properties of gold. While digital dollars in your bank account can be easily forged and created at the press of a button, Bitcoin is a programmatically defined digital currency that is created with very specific, indisputable conditions – each and every Bitcoin is mapped and protected by a globally visible ledger. This ledger allows every single Bitcoin in existence to be mapped as it moves from wallet to wallet, making it impossible to create “forged” Bitcoins from thin air.
Why Are Companies Like Square and MicroStrategy Only Acting Now?
Despite the properties of Bitcoin, it is only recently that the volatility of Bitcoin has started to settle. Institutions and businesses need readily available access to liquidity and can only take on very limited risk when it comes to their balance sheets; companies often rely on their reserves for various purposes that may include short, mid and long term prospects.
Since hitting a string of all times highs, Bitcoin’s latest surge hit the $58,000 mark in mid February. Before this a number of large firms followed suit and moved a portion of their company reserves into the biggest cryptocurrency market. After their initial $50 million investment, Square went on to invest a further $120 million in the cryptocurrency, pushing their portion of company reserves in Bitcoin to 5%. MicroStrategy also continued their crypto investment venture, acquiring a further 33,750 BTC to make up their portfolio of 72,000 BTC as of early Februrary. Mostly notably Tesla announced in early February too that the company had invested $1.5 billion into Bitcoin, sending the market soaring to great heights.
Square, MicroStrategy and Tesla are just three companies opening up about their plans, but individuals who are less risk-averse have been investing in Bitcoin for years – for instance, Paul Tudor Jones, a billionaire hedge fund manager, has almost 2% of his total assets in it.
Nonetheless, there is no better time to enter Bitcoin and be part of the next generation of currency. Oobit is a financial service that makes buying and selling Bitcoin and other digital currencies easy, simple and lets you use crypto with the same ease as traditional money. We connect and introduce what would be an endless maze of information surrounding blockchains, and build tools that enhance the crypto user experience. Find out more at oobit.com and purchase your first Bitcoin today. As big companies like Square and MicroStrategy turn to Bitcoin for their reserves, it’s time to consider the longevity and importance of this new age monetary system.