In a thought-provoking video by My First Million, Michael Saylor discusses how Bitcoin can potentially save companies. He uses the analogy of a melting ice cream bowl to represent a company’s cash pile that is losing value due to inflation. Saylor emphasizes the need for companies to do something with their cash and prevent it from “melting away”. He believes that investing in Bitcoin can generate more value for companies in the long run compared to their operating income. Saylor also highlights the importance of estimating the rate at which the money supply will expand in order to make informed investment decisions.
How Bitcoin Can Save Any Company According To Michael Saylor
Introduction
In a recent discussion, Michael Saylor, the CEO of MicroStrategy, shared his insights on how Bitcoin can save companies in today’s volatile economic landscape. Saylor uses a compelling analogy of a melting ice cream bowl to represent the cash pile of a company, which is steadily losing value due to inflation. He emphasizes the urgent need for companies to take action and prevent their cash from “melting away.” According to Saylor, Bitcoin provides a unique solution that can not only protect a company’s cash pile but also generate significant investment income in the long run.
The Melting Ice Cream Bowl
Representation of a company’s cash pile
Saylor begins by suggesting that the cash pile of a company can be visualized as an ice cream bowl that is slowly melting away. This analogy effectively conveys the idea that cash loses value over time due to inflation and the continuous printing of new money. If companies do not take action to preserve their cash, it will gradually erode and become less valuable.
Cash pile losing value due to inflation
Saylor highlights the detrimental impact of inflation on a company’s cash pile. As the money supply expands and new currency is introduced into the market, the value of existing cash diminishes. This means that companies’ purchasing power decreases, making it more challenging to maintain profitability and sustain growth.
Need to prevent cash from ‘melting away’
Recognizing the urgent need to prevent their cash from “melting away,” Saylor argues that companies must find alternative strategies to preserve and grow their wealth. He proposes that investing in Bitcoin can offer a viable solution, as it has the potential for long-term value appreciation and protection against inflation.
Investment Income from Bitcoin
Bitcoin as an investment with long-term value
Saylor firmly believes that investing in Bitcoin can generate substantial investment income for companies. He emphasizes that Bitcoin is not merely a speculative asset, but rather a sound long-term investment with intrinsic value. The finite supply of Bitcoin, coupled with its decentralized nature and strong network effect, positions it as a robust store of value and an ideal hedge against inflation.
Comparison to operating income
Drawing a comparison between investment income from Bitcoin and operating income, Saylor suggests that over time, the former will outweigh the latter in terms of generating value for companies. While he acknowledges that operating income is essential for short-term success, he argues that investment income from Bitcoin has the potential to provide exponential growth and secure a company’s long-term future.
Impact of COVID-19
Effect on cost of capital
Saylor acknowledges the significant impact of the COVID-19 pandemic on the cost of capital. With interest rates at historic lows and governments implementing stimulus measures, the cost of borrowing has decreased substantially. This has created an environment where asset owners, including companies with investments such as Bitcoin, have seen their wealth grow exponentially. However, companies that solely rely on operating income without investing in appreciating assets have struggled to keep pace.
Tilted playing field in favor of asset owners
Saylor argues that the current economic landscape has created a tilted playing field that favors asset owners. Companies that have invested in appreciating assets like Bitcoin have experienced significant growth in their wealth, while those that rely solely on operating income have faced challenges. This disparity can have far-reaching implications for companies, shareholders, employees, and even the broader economy.
MicroStrategy as an Operating Company
Clarification of MicroStrategy’s identity
Saylor clarifies that MicroStrategy is not a finance company, exchange-traded fund (ETF), or exchange-traded product (ETP). Instead, MicroStrategy is an operating company that owns Bitcoin as property. He emphasizes the importance of understanding this distinction to avoid misconceptions about MicroStrategy’s role in the market.
Bitcoin as property owned by MicroStrategy
Saylor explains that Bitcoin should be viewed as a form of property owned by MicroStrategy, similar to owning land or any other physical asset. By holding Bitcoin on its balance sheet, MicroStrategy has effectively positioned itself to benefit from the potential appreciation in Bitcoin’s value while also stabilizing its financial position.
Estimating Money Supply Expansion
Importance of estimating expansion rate
Saylor highlights the crucial role of estimating the rate at which the money supply will expand. This estimation is essential for making informed investment decisions and understanding the implications of inflation on a company’s financial health. He argues that every investor and company must calculate this rate to navigate the economic landscape successfully.
Saylor’s suggested estimate
Saylor suggests a reasonable estimate of a 15% expansion rate for the currency over the next eight years. However, he also acknowledges that this estimate can vary depending on pessimistic or optimistic viewpoints. Factors such as bond purchases by central banks, government deficits, and stimulus measures contribute to the expansion of the money supply.
Factors influencing the expansion
Saylor identifies several significant factors that contribute to the expansion of the money supply. These include bond purchases by the Federal Reserve and the EU Central Banks, multi-trillion dollar deficits, and extensive stimulus measures. Given the consensus among governments to run deficits and keep interest rates low, Saylor predicts that inflation will continue to persist in the foreseeable future.
Inflation and Consensus among Governments
Prediction of continued inflation
Building upon his previous points, Saylor predicts that inflation will continue due to the consensus among governments to run deficits and maintain low-interest rates. This consensus supports the expansion of the money supply, which ultimately leads to inflationary pressures. As a result, companies need to adapt to this reality and find ways to navigate the challenges posed by inflation.
Negative real yields on most assets
Saylor explains the concept of negative real yields and how it affects various assets. Negative real yields occur when the returns on an asset fail to keep up with inflation, resulting in a loss of purchasing power over time. Saylor highlights that most assets, except for Bitcoin, have negative real yields. This reinforces the importance of finding alternative investments that can preserve and grow wealth in the face of inflation.
Bitcoin as the least likely to be impaired
Saylor argues that Bitcoin is the optimal asset for protecting against impairment due to its unique characteristics. As an encrypted form of money, Bitcoin is not subject to property taxes, execution issues, counterparty risk, or corruption. Additionally, its scarcity and robust network make it the most secure store of value in the world. This makes Bitcoin the least likely asset to be impaired in an inflationary environment.
Solving the Treasury Problem
Importance of finding solutions
According to Saylor, companies must find ways to solve the Treasury problem to safeguard their financial position and navigate the rapidly expanding money supply. This requires strategic decisions such as converting cash flows, bonds, and fixed assets into Bitcoin. By embracing this approach, companies can secure their future by investing in an appreciating asset while protecting their wealth against inflation.
Converting cash flows, bonds, and fixed assets
Saylor advises companies to convert their cash flows, bonds, and fixed assets into Bitcoin. This approach enables companies to leverage the potential growth of Bitcoin while mitigating the risks associated with holding traditional assets. By financing fixed assets in dollars and investing in Bitcoin, companies can position themselves to thrive in an environment characterized by rapid money supply expansion.
Conclusion
In conclusion, Michael Saylor’s insights shed light on how Bitcoin can save companies in the face of inflation and a rapidly expanding money supply. By understanding the concept of the melting ice cream bowl and the need to prevent cash from “melting away,” companies can take proactive steps to protect and grow their wealth. As Saylor emphasizes, investing in Bitcoin not only offers a potential hedge against inflation but also opens doors to significant investment income. With prudent financial strategies and a long-term vision, companies can navigate the volatile economic landscape and secure a prosperous future.
