Michael Saylor’s Bitcoin Bet: A Smart Move or a Risky Gamble?

Welcome to Financial Fluency - a newsletter designed to boost your understanding of financial terms and provide you with investment ideas for long-term financial success.

In today’s newsletter:

• A Look at the Markets: Bitcoin & Strategy

• Michael Saylor’s Bitcoin Bet: A Smart Move or a Risky Gamble?

• Quote of the Day: Michael Saylor

• What I’m Watching: Michael Saylor Bitcoin Presentation

• Word of the Day: Treasury Asset

• Whenever you are ready, here is how I can help you

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A Look at the Markets: Bitcoin & Strategy

Bitcoin/USD

If Bitcoin were to break above $92,000, I think this would be a bullish sign. However, I note that it could still drop to the previous area of support and resistance at $72,000.

Strategy (formerly MicroStrategy Incorporated)

In recent months Strategy has been more volatile than Bitcoin, as shown in the comparison in the chart below.

Bitcoin versus Strategy

We can see how closely Strategy followed the Bitcoin price from August 2020, when MicroStrategy (now Strategy) started investing in Bitcoin, until the beginning of 2024.

Does the divergence since the beginning of 2024 suggest that Strategy is overvalued?

Michael Saylor’s Bitcoin Bet: A Smart Move or a Risky Gamble?

Exploring the Risks and Rewards of Strategy’s Bitcoin Strategy

Michael Saylor, founder of Strategy (formerly MicroStrategy), recently announced that his company holds over 500,000 Bitcoin after further purchases this week.

Strategy's significant Bitcoin holdings highlight the growing institutional interest in cryptocurrency and holding it as a treasury asset. This development raises questions about whether such investments are wise and what implications they might have for the broader financial market. As a result, understanding Bitcoin and its potential impact becomes increasingly important for business professionals.

Let’s examine the implications and potential risks or possible rewards for investors.

What is Bitcoin?

Bitcoin is a decentralised digital currency that operates independently of central banks or government control.

Bitcoin uses blockchain technology to record transactions securely and transparently, making it a unique form of digital money. Unlike traditional currencies, Bitcoin is not issued by any government and has a limited supply, which contributes to its appeal as a potential store of value. Bitcoin's decentralised nature allows for peer-to-peer transactions without intermediaries, which can reduce transaction costs and increase efficiency.

Understanding Bitcoin's core principles is essential for navigating discussions about its potential role in business and finance.

Currency versus Money

The distinction between currency and money is crucial when discussing Bitcoin, as it challenges traditional financial definitions.

Bitcoin is often referred to as a cryptocurrency rather than a traditional currency because it lacks government backing. However, it functions as money by serving as a medium of exchange and store of value, which aligns with broader economic definitions of money. The debate over whether Bitcoin is more akin to money or currency reflects its innovative nature and the evolving understanding of financial instruments.

Don’t think of cryptocurrencies as currencies - the name is probably because ‘crypto money’ does not sound as catchy.

What is a Treasury Asset?

A treasury asset represents a critical financial instrument that companies strategically manage to preserve capital and maintain financial flexibility.

Companies typically hold treasury assets like cash equivalents, government securities, and short-term investments to provide liquidity and generate modest returns. These assets serve as a financial buffer against economic uncertainties and help organisations maintain financial stability. Michael Saylor's approach of using Bitcoin as a treasury asset represents a radical departure from conventional financial management strategies.

The evolution of treasury assets demonstrates the dynamic potential of corporate financial innovation in the digital economy.

Who is Michael Saylor?

Michael Saylor is the executive chairman of Strategy (formerly MicroStrategy), originally a software company that has become synonymous with Bitcoin investment as a treasury asset.

Michael Saylor is a prominent advocate for Bitcoin, viewing it as a strategic asset with immense potential, often likening it to "cyber Manhattan." He has advised policymakers on Bitcoin and continues to play a significant role in promoting its adoption. Saylor's leadership at Strategy has positioned the company as a pioneer in corporate Bitcoin investment.

Saylor's influence underscores the importance of understanding key figures in the business world who are shaping the future of finance.

Will Other Companies Follow Strategy’s Lead?

Other companies may be inspired by Strategy's bold strategy and consider similar investments in Bitcoin.

This week, GameStop announced plans to raise $1.3 billion to buy Bitcoin, and other companies may follow Strategy’s strategy. As institutional investors increasingly view Bitcoin as a viable asset, it is likely that more companies will follow suit. This trend could lead to a broader acceptance of Bitcoin in mainstream finance.

The potential for other companies to adopt similar strategies highlights the evolving landscape of corporate finance and investment.

Benefits for Bitcoin

Michael Saylor's advocacy for Bitcoin has helped raise awareness and promote education about cryptocurrency.

Saylor's efforts have contributed to a greater understanding of Bitcoin's potential benefits, such as its role in diversifying investment portfolios and its ability to act as a hedge against inflation. Regular investment strategies, as advocated by Saylor, can help stabilise the market and encourage more widespread adoption. By promoting Bitcoin, Saylor acts as an ambassador for the broader cryptocurrency community.

Despite being initially sceptical of Bitcoin, Michael Saylor has become a prominent advocate for the cryptocurrency.

Risks of Strategy’s Approach

Strategy’s substantial investment in Bitcoin carries substantial risks, including market volatility and centralized decision-making.

The concentration of Bitcoin holdings within a single company can cause market instability if Strategy’s strategy isn’t effectively managed. Moreover, the company’s reliance on Bitcoin exposes it to the risks inherent in cryptocurrency, such as price fluctuations and regulatory uncertainties. This centralisation of power contradicts the decentralised principles of Bitcoin, potentially undermining its fundamental advantages.

The risks associated with Strategy’s strategy emphasise the importance of careful consideration and diversification in investment portfolios.

Should You Invest in Strategy?

Investing in Strategy provides an alternative way for investors to gain exposure to Bitcoin through conventional stock market channels.

Investing in Strategy provides leverage and the convenience of using a standard stockbroker, which can be appealing to those who prefer the familiarity of traditional investment platforms. However, this approach lacks the decentralised benefits of directly holding Bitcoin in a secure wallet and exposes investors to typical corporate risks such as management issues and market fluctuations. While Strategy's stock performance is correlated with Bitcoin's, it is not a direct substitute for holding the cryptocurrency itself.

Investing in Strategy requires a clear understanding of both the potential benefits and the inherent risks involved.

As always, none of this is financial advice. Everyone should invest according to their personal circumstances, risk tolerance and financial goals.

Quote of the Day: Michael Saylor

Michael Saylor’s thoughts on Bitcoin. Do you agree?

What I’m Watching: Michael Saylor Bitcoin Presentation

Word of the Day: Treasury Asset

Treasury asset - compound noun - countable - a financial instrument or security issued by the United States Department of the Treasury, including Treasury bills, notes, and bonds, which are considered low-risk investments backed by the full faith and credit of the U.S. government

Compound noun: Treasury asset is a compound noun - a noun consisting of two words that function as a single unit in financial terminology. While some compound nouns are written as one word or hyphenated, "treasury asset" is written as two separate words while maintaining a specific conceptual meaning in financial contexts.

Michael Saylor's Context

In the context of macroeconomic strategy, Michael Saylor has notably expanded the concept of a treasury asset beyond traditional government securities. Saylor argues that in an era of monetary inflation, companies and investors should seek treasury assets that can preserve value more effectively. He prominently advocates for Bitcoin as a superior treasury asset, positioning it as a digital store of value that can protect against currency devaluation, in contrast to traditional low-yield government bonds.

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Disclaimer:

This newsletter is for informational and educational purposes only and should not be construed as financial advice. The information contained herein is generic and does not take into account your individual financial circumstances. You should always consult with a qualified financial professional before making any investment or financial decisions.

Additionally, the authors and/or publishers of this newsletter may hold investments in securities or other financial instruments mentioned herein. These are included for illustrative purposes only and should not be taken as a recommendation to buy or sell such securities or financial instruments.