BlackRock CEO Larry Fink. (Photo by Michael M. Santiago/Getty Images)
Bitcoin has reached a market capitalization of $1.3 trillion and boasts hundreds of millions of users, but it is still viewed with skepticism, fear, and even scorn by some. Critics label it a tool of crime or speculative gambling with no real future in the global financial system.
Remnants of that story remain today among those who serve as mouthpieces for the big banks and deny their potential for change. However, over the past 15 years, Bitcoin has transitioned from a primarily individual grassroots movement to rapid adoption within institutional finance.
Bitcoin's early critics were not justified. In its early stages, the project had a good chance of failure. But now that Bitcoin has proven its staying power, major financial institutions, hedge funds, and even government agencies are starting to consider it as a store of value.
BlackRock CEO Larry Fink has recently positioned himself as a prominent advocate. Once a skeptic, Fink now believes Bitcoin is on its way to becoming an independent asset class, comparable to other financial innovations that started slowly and then expanded in size, such as the mortgage market or the high-yield bond market. I believe that. He rejected the idea that Bbitcoin's trajectory depends on political outcomes, saying that neither US presidential candidate will significantly change Bbitcoin's growth.
This bullish stance is underlined by the success of BlackRock's Spot Bitcoin ETF, which launched in January 2024 and has already amassed over $23 billion in assets. Record inflows into Bitcoin ETFs indicate growing demand from institutional investors, outpacing even gold-based products in terms of capital inflows. In just 10 months, Bitcoin ETFs have collected nearly $20 billion, while gold ETFs have only collected $1.4 billion, despite hitting all-time highs 30 times this year.
This divergence highlights Bitcoin's growing recognition as a store of value and a hedge against economic instability. More and more institutional money will flow into Bitcoin as Standard Chartered predicts Bitcoin could reach $200,000 by 2025, regardless of US election outcome It is clear that Japan is solidifying its role as a financial powerhouse in the global investment environment.
MicroStrategy infinite money bug
A pivotal moment in this shift occurred when publicly traded companies began accumulating Bitcoin on their balance sheets as part of a broader financial strategy, rather than simply as an investment. MicroStrategy, in particular, has been a key player in this trend, demonstrating how Bitcoin can serve as a strategic asset in these extraordinary times, where entirely new forms of base money are emerging.
In 2020, MicroStrategy CEO Michael Saylor announced that the company would reduce its cash reserves to a bit, citing the long-term decline in fiat currencies and the need for more solid assets to preserve wealth. It became a hot topic when it was announced that it had been converted into coins. This decision was not a standalone bet on Bitcoin's future value, but was part of a larger strategy to leverage Bitcoin's unique properties as both a store of value and a strategic financial asset.
Unpacking MicroStrategy's Bitcoin vision, now colloquially referred to as the “MicroStrategy Playbook” and copied by other companies such as Metaplanet, helps explain why Bitcoin is disrupting corporate finance. .
The core of MicroStrategy's approach is the use of convertible debt to fund Bitcoin purchases on an ongoing basis. By issuing convertible bonds at low interest rates and using the proceeds to buy Bitcoin, MicroStrategy is effectively investing in “global carry,” an asset that can appreciate significantly in value over time while offering low interest rates. It is in a long state to borrow money. At the same time, owning Bitcoin itself establishes the company's status. short Bitcoin is carried globally because it is deflationary in nature. Even as global liquidity increases, supply remains predictable and only price can respond to increased demand.
This dual position of being both long and short on global carry is unique. This turns MicroStrategy into something of a modern version of the 60/40 portfolio, with the main difference being that both positions (long and short) are embedded within the same asset. Thaler created a scenario where MicroStrategy takes advantage of both global liquidity and Bitcoin's scarcity to create what some are calling an infinite money glitch. This is an amazing demonstration of financial engineering that could only occur in the early stages of Bitcoin monetization.
The fading wisdom of 60/40
For decades, a 60/40 portfolio of 60% stocks and 40% bonds has been the gold standard for conservative investors. The theory behind it is simple. Stocks provide growth, bonds provide stability and income, and balance risk and reward.
However, in an economic environment characterized by low interest rates and rampant money printing, this traditional model does not work as well as it once did. Bonds are currently risky and stock market performance is dependent on a small number of proprietary and highly regulated companies.
The extraordinary performance of a select few, the so-called “Magnificent Seven,” distorts overall market returns and masks the weak performance of other companies. The group, which includes giants like Apple, Microsoft and Tesla, delivered an average year-over-year return of 57% through mid-2024, more than double the broader S&P 500's return of 25%. . Without these seven megacap stocks, which currently account for 31% of the S&P 500 by weight, the index's returns would have been significantly weaker. In fact, if you exclude them, the S&P 500's year-to-date gain of 18.1% will be reduced to just 9% as of July 2024. This difference shows how concentrated the market performance is.
The decision by companies like MicroStrategy to adopt Bitcoin is not just a bet on rising prices. This represents a fundamental shift in how companies view financial management in an increasingly volatile economic climate. For decades, companies have relied on cash reserves, bonds, and other fiat-based assets to manage their balance sheets. However, these traditional assets are now losing their ability to hold value as central banks and regulators around the world constantly intervene in economies to achieve political objectives.
In contrast, Bitcoin provides a flexible, low-maintenance store of value that has virtually no maintenance costs and is not subject to inflationary depreciation. Additionally, as Bitcoin's adoption increases, its liquidity and market infrastructure continue to improve, making it easier for financial institutions to buy, sell, and hold large amounts of it without disrupting the market.
MicroStrategy's move to adopt Bitcoin as a core financial asset highlights the growing recognition that Bitcoin's potential is much greater than many initially believed. The company's innovative approach to leveraging both global liquidity and Bitcoin's scarcity not only outperforms traditional financial strategies, but also demonstrates how Bitcoin is strategic in an increasingly inflationary fiat currency environment. We have demonstrated that we can provide an advantage.
Bitcoin’s $100 trillion potential
At the time of writing, Bitcoin's market capitalization is hovering around $1.3 trillion, equivalent to about one-tenth of gold's $13 trillion. Bitcoin has already proven to be one of the best-performing assets over the past decade, and the potential for future growth is huge. If Bitcoin continues to be adopted by institutions, governments, and businesses, it could easily match or exceed the market capitalization of gold and one day become a $100 trillion asset class.
MicroStrategy's bold move is just the beginning of what could be a massive shift in corporate finance. If more companies recognize this unique moment for what it is, they too may be able to take advantage of MicroStrategy's infinite funds glitch. Now, it looks like the next wave of Bitcoin adoption will come through corporate balance sheets, marking the beginning of a new chapter in this fascinating story.
