Michael Saylor revealed in an hour and a half interview the catalysts for the next bitcoin bull run.
“Fair value” accounting
The upcoming change in accounting standards to accommodate bitcoin clears the way for the next bull run.
“Bitcoin will likely be counted until 2024 as an indefinite, tangible asset. This means that companies with bitcoin in cash will suffer losses if it goes down, but no gains if it goes up. This is a one-way (downward) ratchet effect on their balance sheet. BTC are currently valued at the lowest price without ever being able to record their current price on the balance sheet”said Mr. Saylor.
In other words, it is only when BTC is resold that a company can restore its balance sheet. This is a problem since the objective is ultimately to use your bitcoins as collateral to borrow instead of selling them. The FASB’s accounting development allowing gains to be recorded in its balance sheet is therefore excellent news.
Traditionally, the most liquid and least risky financial asset favored by treasury managers is the local currency. But holding cash means becoming poorer due to inflation. The larger it is, the more multinationals have an interest in getting rid of this cash to buy back their shares.
The problem being that in the event of an unforeseen event (collapse of economic activity due to Covid, for example, etc.), the absence of cash in hand can result in bankruptcy.
Multinationals therefore also invest part of their cash flow in sovereign debt. It is considered low risk since it is unlikely that any government will default, particularly that of the United States.
The sovereign debt problem
There are risks associated with the duration of the debt as well as potential changes in interest rates. The key rate is, for example, 25% in Türkiye. And even 118% in Argentina.
However, the value of long-term debt securities depends on rates. Securities purchased just before a massive rate hike see their value collapse. A company obliged for x reason to resell these securities before maturity then reaps a colossal loss. Silicon Valley Bank (SVB) knows something about this…
Here is proof of the value of 30-year US government debt securities (which offer a rate of 1.25%). It fell by 50%:
Additionally, sovereign debt, although “safe” and more liquid than other assets, does not generate significant returns. A company holding a significant amount of sovereign debt yielding 5% will only get 3.5% after tax.
Knowing that if the money supply increases by 7% per year (the average for 100 years), a treasury must return at least 7% per year, all things being equal.
Given the low yields on cash and sovereign debt, Mr. Saylor notes that multinationals have traditionally used two other strategies (other than share buybacks):
- Pay dividends: Shareholders will be left with the same problem.
- Acquisitions: Purchase of assets with a view to obtaining a better return.
Bad idea according to the CEO of Microstrategy:
“In my experience, in 30 years of running a publicly traded company, all of my competitors have disappeared due to bad corporate buyouts. They overpaid for companies that weren’t worth much because they were desperate to buy something to prop up the value of their shares. »
Bitcoin, the treasurer’s new strategy
For Mr. Saylor, bitcoin is an asset that will appreciate much faster than inflation due to the 21 million limit:
“Starting in 2024, CFOs and CEOs will have the option to buy bitcoin instead of buying Treasury bonds. It will be possible to hold in cash a liquid and fungible commodity which will probably yield 14% per year in the long term. And this, even after the next bull run which will see bitcoin appreciate faster than 14% per year. In ten or twenty years, if the quantity of money in circulation continues to grow at 7% per year, bitcoin will still appreciate at 14% per year. »
“Putting your cash in bitcoin is not the same as putting it in soy, silver, gold, oil or natural gas which are real commodities. It is possible to produce more if their price triples. Gold miners will produce more gold, farmers more soy. Raw materials are not rare. The same goes for multinational stocks. Any S&P500 company can issue more shares. This is not the case for bitcoin. »
“The closest thing to bitcoin would be land in Miami Beach. Prices have increased 1000 times over the last century. The reason being that no amount of money, technology or know-how can create more oceanfront square footage in Miami Beach. Unfortunately, the m² of Miami Beach is not a suitable asset for corporate treasury. I can’t trade it every day in the market. […] The complete opposite of bitcoin which is a liquid and fungible digital scarcity that can be easily added to one’s treasury. »
Where will Bitcoin adoption come from in the next five years?
For Mr. Saylor, bitcoin adoption will come from everywhere:
-Creation of exchanges in all countries
-P2P exchanges of goods and services in bitcoins
-Integration of bitcoin by companies, investment funds and sovereign wealth funds
-Adoption of bitcoin by banks
-Bitcoin spot ETF
Saylor believes the ETF will be “the biggest bullish catalyst” and “those who can already buy bitcoin on an exchange can consider themselves lucky »:
“You can buy a bitcoin for $26,000 apiece instead of $1,000,000. We are on the verge of seeing Wall Street invest an ocean of money in bitcoin. Soon, most people will invest in bitcoin by purchasing an ETF share from Fidelity or BlackRock. »
“Eventually, even banks will offer to invest in bitcoin. Others will hold the ETF because they think it’s a little easier. And then there will always be the maximalists who own their own seed. »
Let’s end by saying that Mr. Saylor thinks that “bitcoin will not replace fiat as a currency, nor will it replace sovereign debt [de court terme] as the least risky asset.
“If you are the Norwegian sovereign wealth fund and you are comfortable with a hundred billion dollars of S&P500 stocks, you could allocate half of that to bitcoin. And you might very well convince yourself that this is diversification aimed at reducing risk. Bitcoin plays this emerging role as a diversifier. »
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