Whale always – MicroStrategy a – again – showed his insatiable appetite for bitcoin (BTC) in 2021. The company now has a large stock of BTC, which it has increased six-fold from its initial purchase. As a review for the year 2021, this article offers a look back at the very basics of the value of bitcoin, in order to shed light on the merits or the irrationality of the race for the accumulation of BTC carried out. by MicroStrategy.
MicroStrategy and bitcoin: last purchase to end 2021 in style
December 29, 2021, MicroStrategy buys 1,914 BTC, valued at $ 94 million. The company holds 124,391 BTC on this date. It had initially acquired in August 2020, 21,454 BTC worth $ 250 million. The company has since pursued an aggressive bitcoin buying strategy.
MicroStrategy CEO Michaël Saylor presented on December 17, 2021, the different possibilities of using these bitcoins to generate profit. Bitcoins could, according to Saylor, serve as guarantee to incur long-term debt, be loaned to a “trustworthy counterpart”, to be made available to future partners who need it … such as banks.
Saylor had defended several times in 2021, the merits of this race to accumulate bitcoin which MicroStrategy launched into. In particular, he compared these bitcoin purchases to an investment made in Facebook in its early days. This massive bitcoin acquisition would also be, according to Saylor, the “higher risk, lower risk strategy” implemented by the company.
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Massive bitcoin purchase by MicroStrategy: back to basics
What is bitcoin’s value really based on? The fervent defenders of the latter like Saylor, are they making a mistake, by letting themselves be carried away by their passion? Bitcoin is a decentralized network that allows transactions to be carried out peer to peer, without the need for intermediaries such as banks.
Bitcoin would therefore be a competitor of banks ? An affirmative answer would imply – simplifying – that the value of bitcoin is therefore based in part on the number of its “customers” or the number of users of its network, and in other words on its adoption rate.
However, Bitcoin is more competitive than banks because its decentralized nature allows it in particular to offer transactions at lower costs, and with relatively short transaction times. Theoretically, Bitcoin therefore has the ability to attract people who are disappointed with the way banks work, and all those excluded from the banking system.
An other idea – which would seem inconsistent with that mentioned previously ? – is that the value of bitcoin relies on its deflationary mechanism, and that bitcoin is not suitable to be a transactional currency.
This deflationary mechanism, and more broadly the clarity of the rules that govern the operation of the network and the inability of a single entity to modify these provisions, increase confidence in bitcoin, because the latter has on these points distinctive advantages clearly marked by compared to fiat currencies which are subject to inflation. Bitcoin is therefore often compared to gold for its increasing scarcity, it would be the digital gold which serves as a hedge asset against the inflation of fiats. And this image can only be positive for its adoption, especially in the current economic context.
Which thesis should we then prioritize as to the basis for the value of bitcoin? People excluded from the banking system are now adopting bitcoin to make transactions with less friction. Investors, especially institutions, may be especially interested in bitcoin as a hedging asset. Time will decide on the thesis which could become dominant.
The volatility of bitcoin and the resulting accounting losses haven’t stopped MicroStrategy from continuing its massive bitcoin purchases. What does the company have in store for bitcoin and its community for 2022?
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