
MicroStrategy Adopts Bitcoin as Primary Treasury Reserve Asset - daveytea
https://ir.microstrategy.com/news-releases/news-release-details/microstrategy-adopts-bitcoin-primary-treasury-reserve-asset
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cs702
_" [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.

~~~
ausbah
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?

~~~
diegocerdan
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.

~~~
mac01021
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.

~~~
SpicyLemonZest
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.

~~~
irln
> "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?

~~~
SpicyLemonZest
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.

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diegocerdan
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?

~~~
rjknight
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.

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haolez
At this point in time, I believe that "investing" in Bitcoin is, in fact, a
short in the dollar (for Americans).

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seibelj
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](https://compound.finance/markets)

This can't be stopped - and there is no government regulating it!

~~~
jcfrei
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.

~~~
seibelj
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.

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irjustin
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?

~~~
LittlePeter
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.

~~~
seibelj
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.

~~~
LittlePeter
True, this is even more likely than the scenario I spelled out.

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iammru
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.

~~~
rafaelturk
This is also my take, bad capital allocation.

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awinder
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.

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CryptoPunk
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.

~~~
martinko
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.

~~~
gizmo686
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](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...](https://duckduckgo.com/?q=6.250+BTC+to+usd&t=canonical&ia=currency)

This means that, to match current security without block rewards, transaction
fees would need to rise by at least $2.84/transaction.

~~~
CryptoPunk
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.

~~~
gizmo686
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.

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jcfrei
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.

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paulpauper
I see shareholder lawsuits on the horizon if this does not work out.

~~~
kevin_thibedeau
It worked out for Shkrelli's investors. He still went to jail.

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sonicggg
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.

~~~
briandw
It’s not the Bitcoin will continue to rise, it’s that the dollar will continue
to fall. All currencies eventually become worthless.

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nwsm
Their stock has risen 12.4% today so far (NASDAQ: MSTR)

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hyko
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.”

~~~
solotronics
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.

~~~
xondono
__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.

~~~
solotronics
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.

~~~
hyko
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.

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dgudkov
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.

~~~
biggie88
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.

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throw1234651234
Here is a list of 20 companies buying Bitcoin recently:

[https://www.forbes.com/sites/michaeldelcastillo/2020/08/06/v...](https://www.forbes.com/sites/michaeldelcastillo/2020/08/06/valuable-
sec-data-on-20-institutional-bitcoin-investors-could-soon-
disappear/#6a77d3fe1de2)

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.

~~~
LittlePeter
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.

~~~
throw1234651234
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.

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seibelj
I bookmarked this HN thread back when the crypto bubble popped:

[https://news.ycombinator.com/item?id=18640755](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...

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Valentino3
Corporate treasury speculating on currency. What could possibly go wrong?

~~~
Valentino3
...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.

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knodi
Good luck to them. They'll need it.

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aphextron
How is Bitcoin not just a proxy for USD?

~~~
safog
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.

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thinkmassive
Original press release submitted here:
[https://news.ycombinator.com/item?id=24120060](https://news.ycombinator.com/item?id=24120060)

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speedgoose
They do not care about the environment. Bitcoin contributes a lot to global
warming by design.

~~~
seibelj
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.

~~~
speedgoose
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.

