In a recent interview, Michael J. Saylor, CEO of Nasdaq-listed business intelligence company MicroStrategy Inc., explained why his firm decided to invest around $425 million of its cash in Bitcoin instead of gold.
On August 11, MicroStrategy Inc. announced via a press release that it had “purchased 21,454 bitcoins at an aggregate purchase price of $250 million” to use as a “primary treasury reserve asset.”
Michael J. Saylor, CEO of MicroStrategy Inc., said at the time:
“This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.
“Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions.
“MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.”
Then, on September 2015, Saylor disclosed that his company had made a second large purchase of Bitcoin:
Last week, Saylor did an interview with Stansberry Research, “a subscription-based publisher of financial information and software.”
In this interview, Saylor explained why MicroStrategy had chosen to invest in Bitcoin instead of gold.
“I considered gold, and then I started studying the two, and then I realized that gold miners are going to produce about 2% more gold every year… Let’s just say in the best of the world for a 100 years we produce 2% more gold, that means $100 million will be debased down to $12.5 million in 100 years. On the other hand, Bitcoin is exponentially going to infinity stock to flow. There’s never going to be more than 21 million Bitcoin.
“So you’re really talking about, at most, diluting $100 million of Bitcoin by 10 million over the hundred years. Given the fact that Bitcoin is an infinitely hard asset, whereas gold can be produced by human beings given enough incentive, I realized that over the long term, Bitcoin is the harder asset than gold.”
He pointed out that Bitcoin is unlike other commodities in that when its price goes up, its not possible for miners to respond by increasing supply:
“If you double the price of gold, you’re going to double the incentive of miners to produce gold, and if gold goes up by a factor of 10, human beings have a way of putting capital into mining and ingenuity and they’ll invent better ways to mine it, and at some point they’ll melt down their jewelry, or they’ll find other gold. On the other hand, if Bitcoin goes up by a factor of 10, no amount of investment in Bitcoin mining can produce more Bitcoin.”
Here is Saylor talking about how digital gold is better than physical gold:
“Bitcoin is digital gold and that means it’s faster. I can move it a thousand places in a couple of seconds. It’s stronger. I can pledge a hundred million dollars for three hours in Japan on a Saturday afternoon.
“It’s smarter. I can write a computer program that will slice in a million pieces and do complicated things with it.
“It’s only going to get better every year forever because it’s software and what that means is people that are attracted to Apple and Amazon and Google and Facebook, because they’re smarter, faster, stronger networks, they’re going to be attracted to Bitcoin.”
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.