Publicly traded company MicroStrategy adopts Bitcoin as a treasury reserve asset to hedge against fiat inflation

Publicly traded company MicroStrategy adopts Bitcoin as a treasury reserve asset to hedge against fiat inflation. MicroStrategy allocates $250mm to Bitcoin. This is a big deal and good to see Bitcoin used as intended: hard money/savings instrument.

What do you make of this?

Do you think it will have any major impact on Bitcoin and digital assets in general?

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This could be of tangent: Could someone explain to me how proliferation of cryptocurrencies is not in itself creation of means of exchange out of thin air? Does it not create inflationary pressure on established cryptocurrencies? Same way as in antiquity good quality coins were always challenged and replaced by poorer quality coins creating progressive loss of tax revenue values? Then, as now, it was necessary to force use of “official coins only”. Isn’t it a fatal flaw in a concept of bitcoin in a long run?

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I think your probably right about the creation of most, if not all, the alt coins out there.

Although Bitcoin isn’t created out of thin air. You have to expend a particular amount of energy to create each coin (the expense of electricity), just as in gold mining you have to expend time and money (for shovels, dynamite, land rights etc) to extract the gold from the earth.

This is a fundamental aspect of Bitcoins Proof of Work consensus that’s misunderstood.

It isn’t inflationary @Eva, it’s the opposite.
There will only ever be 21 million BTC mined, the issuance gradually gets less and less up to finality, this was what the recent halving was about, the supply issuance was halved and this happens every 4 years.

This is why Bitcoin is considered hard money just like gold, it’s issuance can’t be artificially inflated like FIAT currencies, or debasing the gold coins of antiquity where the Sovereign diluted the gold with ever increasing mixes of copper to “temporarily expand the monetary supply” ultimately causing inflation.

BTW, highly recommend Mike Maloney’s series “Hidden Secrets of Money”, this particular episode deals with this topic.

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Exellent explanation @stackem :smiley:

I’ll try to add more to this later.

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This is just a brief outline, hope it’s helpful :innocent:

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Hi stackem, I appreciate your reply.

If gold is a precious metal with finite quantity on earth, and bitcoin is hard money like gold, because it cannot be produced out of thin air, I understand the concept that either cannot be printed/minted/mined out of thin air.

We are on the same page here.

However, the proliferation of alt currencies means that they are being printed/minted/mined in ever increasing quantities out of thin air (or computer server somewhere at the cost of electricity). This in itself is a potentially unlimited increase in the quantity of alt currencies in the market.

Maybe nobody will pay attention to bitcoin (demand will plummet) once there will be a Kaleidoscope of alt currencies backed by various corporations?

Then again, gold is much more common than, say, rhenium. The amount of rhenium in the earth crust is miniscule. Platinum, in comparison to gold, is really plentiful. If countries will start minting coins from iridium, rhenium, ruthenium, rhodium and osmium, (platinum have already been added and acquired the status of hard money and palladium is getting there)
Isn’t expanding the total tonnage and types of precious metals that can be considered hard money in itself creating hard money where there were none before?

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I’ll try to answer all the questions, those are some tough ones haha

Without going much into how money is created, all fiat money (us dollar, brittish pound, euro,…) has no underlaying assets.
The value of that paper is almost nothing, but the value comes out of trust.
Trust that the central bank that is printing the currency is doing right things.
Trust that you will be able to buy same things with 100 dollars NOW and TOMORROW.

Gold is so important today because it was given importance in the past. There isn’t much you can do to survive in nature with gold. We gave it value just like we did it with dollars.
But since you can’t replicate gold it was used as a currency in the past when countries couldn’t protect themself from replication of a piece of paper.

To conclude haha
Money is just a proof of work being done, so you can use it for whatever you need.
Today there is no real need to find something in nature that cannot be replicated (we can do it ourselfs) so we can use anything we decide as means of payment.

Big dissadvantage of fiat money is that you can’t really control how much money is printed out and given to credit banks, that is where digital assets come in play with its proof of work and usually blockchain so everybody can know how much of some currency there is and the distribution.

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Each particular coin/token has it’s own issuance criteria, some coins will “melt” coins created if a certain function is met, so slightly deflating it’s supply at that point. Some have huge pre-mines, others minted at various stages and quantities. Thousands of different cryptocurrencies minting and destroying their coin or token at different levels over different time spans, question is, so what?

We live in a world of 190 odd countries, most with it’s own currency. If Zimbabwe decides to print another trillion Zimbabwean Dollars would that affect the value of the Canadian Dollar?
No of course not, if you think about it why would it as it’s not intrinsically linked. The Zimbabwaen Dollar would devalue due to the base currency inflation, but not any other currency not pegged in any way.

It’s the same difference with cryptocurrencies, what one does to it’s supply doesn’t necessarily affect any other coin.

The unique feature of Bitcoin is the fact it’s truly decentralised. There is no CEO or headquarters, no one controls the protocol, this is left to it’s fundamental algorithms which can’t be influenced by people.

If you wanted to stop any other alt coin, governments could turn up at the office and shut the project down, or indict the CEO or founders etc with whatever they like.
Alternatively, the project founders could for whatever reason, alter the state of the blockchain as was done by the Ethereum devs after the DAO Hack in 2016, whether you consider this the right course of action or not, the fact is they could and did change the protocol.

This becomes a trust issue. Nobody is going to treat any coin as a store of value if your never quite sure if it couldn’t be manipulated in some way.

Consider this, if some one offered you 1 Bitcoin or 10,767 TomoChain (random picked coin), which would you chose, the values are identical at the moment, if you were told you had to hold them for 5 years?
Fact is, 90% or more of all the alt coins out now won’t be around in 5 years.

Gold and Silver are used as let’s be fair, historically there was no alternative. Gold is just about perfect, doesn’t tarnish,rust, malleable, inert basically last forever.
Rhenium is too rare and probably toxic, platinum too hard to work(think it needs massive temperatures to melt) and the other metals must have some drawback of kinds.

Money has definitive criteria to meet :
1 Acts as a medium of Exchange
2 Is a unit of Account
3 Acts as a store of value
i/ Fungible ii/ Durable ii/ Divisible iv/Portable v/ Acceptable vi/ Limited in Supply vii/ Uniform.

If you have something that qualifies all the above, you’ve got yourself hard money.
FIAT’s are considered currencies rather than money as they don’t fulfil the criteria as a store of value.
Gold is preferred above all else because of it’s perceived value proposition over eons and as being desired, trusted & fungible. :grinning:

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This turned out to be more educative than i anticipated. Thanks guys. Following closing

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image

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Haha, my feeling exactly @ZackofPynk :slightly_smiling_face:

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Buckle up - this is a long one. :nerd_face:

There are a few aspects to consider and looking at the role of central banks is an excellent place to start. Central banks across the world set interest rates to fulfil a dual mandate of maintaining price stability (i.e. keeping the rate of inflation within reasonable boundaries) and pushing the economy towards full employment.

Currently, central banks across the world print money at unprecedented levels. This increases the total supply of money in circulation, hence putting most countries out there on a trajectory towards high(er than usual) inflation. Why is this the case? Well, the law of supply and demand tells us that when demand for goods and services exceeds the supply of goods and services, prices are expected to rise. How does the law apply to our current situation? The production of goods and the delivery of services are being inhibited by the ongoing pandemic, putting a strain on the ability of companies out there to meet market demand. It’s true that people demand fewer goods and services during precarious times, but remember that business and government agencies also spend billions on goods and services + they have a strong incentive to restart the economy. At the same time, where there is an abundance of money in circulation, monetary value dilutes. This is further strengthened by money velocity - which is fairly low at the moment given reduced economic activity.

What do you think will happen when the economy restarts and money velocity increases?

Check economic stimulus in the US below to understand the scale.

Why does MicroStrategy’s decision make sense? First of all, with yields on fixed income instruments (e.g. bonds) going negative, investors turn to other instruments to find returns. Given the impending rise in inflation, holding money under the mattress is a risky affair. To put it into perspective, if inflation were to run at an annual rate of 5% for the next 6 years, the estimated value of your money in today’s terms would fall by roughly 25% (ouch!).

The economic and technical fundamentals of Bitcoin (not investment advice!) have made it what it is today, a reliable asset that increases in value by virtue of its irreversible mining schedule that creates artificial scarcity. One argument supporting the expectation that Bitcoin will be around despite its technical limitations (e.g. throughput speed and costs) is the growth of the blockchain ecosystem, where Bitcoin plays the role of a gateway asset to the blockchain economy.

To put it into perspective, blockchain reached 50 million users in 2020. The internet had between 36 million and 70 million users in 1996. Back then, most people lacked the hardware and infrastructure to access the internet. Hardware limitations are not stopping people from accessing blockchain infrastructure now. The missing piece? A user-friendly interface and proven scalable use cases.

(Pssst! The internet has 4.57bn users 24 years later. Do you think blockchain will take this much to reach 4.57bn people?)

Everything contained in this message is my opinion and does not constitute investment advice! Do your own research!

P.S. I’m happy to clarify any economic or technical questions you may have regarding blockchain.

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