The monetary policies being taken by the Federal Reserve and other central banks across the globe amid the Covid-19 pandemic is shining a light on issues with traditional finance and fiat currencies. At the same time, these policies are forcing some to look to other investments, such as Bitcoin, as a new asset class.
The policies being enacted are intended to stimulate spending and have seen almost unlimited money printing to bolster the economy. However, these policies have negative consequences, such as inflation, and this is being noted by major enterprises.
MicroStrategy’s CEO Michael Saylor says the Federal Reserve’s recent relaxing of its inflation policy is one of the factors that drove him to put the remainder of the enterprise-software maker’s cash into Bitcoin.
The CEO has gone a step further and dispelled the perceived issues of Bitcoin’s stability and reliability by stating Bitcoin is less risky than Cash.
A better option
Saylor made an interesting move when it completed the purchase of 21,454 Bitcoin which formed part of the company’s capital allocation strategy following its financial results for the second quarter of 2020.
Having met financial obligations to shareholders from profits, the company carried through with plans to invest around $250 mln into an alternative asset class. This investment has increased since that initial move and now sits at $425 million.
“We feel pretty confident that Bitcoin is less risky than holding cash, less risky than holding gold,” Saylor said in an interview.
Before the Covid-19 crisis, the company had about $500 million mostly invested in short-term U.S. government securities. Saylor began to question that conventional strategy when yields tumbled in the wake of the pandemic. He estimates that so-called asset inflation will surge to more than 20% a year, eroding purchasing power.
“Once the real yield on our treasury got to more than negative 10%, we realized that everything we are doing on P&L is irrelevant,” Saylor said. “We really felt we were on a $500 million melting ice cube.”
More institutional interest
The last few years in the Bitcoin evolution have been based upon the growth of the coin into the institutional investment narrative. Bitcoin has made itself a popular option for big name investors and companies to experiment with, but the move by Saylor, as well as hedge fund guru Paul Tudor Jones, has really advanced Bitcoin’s claim at being a viable alternative.
The wake of the Covid-19 pandemic on the global economy and financial space is expected to be great, and this is carving out a niche for something like Bitcoin to fill. Bitcoin is probably not ready to fit the hole being made as it stands, but there is room for it to grow.