Bitcoin’s long-term rise is a high probability event, which may be the reason why MicroStrategy is crazy to buy Bitcoin.
Original title: “Is MicroStrategy crazy for issuing $550 million in debt to buy Bitcoin? 》
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry
Is MicroStrategy crazy for issuing $550 million in debt to buy Bitcoin? The most direct answer to this is no, it is just more radical and bold than other institutions. If MicroStrategy had issued a debt of $550 million to buy Bitcoin at this time two years ago, it would indeed be a suicide move, and the stock price of this listed company would have plummeted. But at this stage, Bitcoin is becoming a major trading product, so borrowing 550 million US dollars to buy Bitcoin, although this is a very crazy move (especially because it has previously spent 245 million US dollars to buy Bitcoin Bitcoin, and later increased the purchase of Bitcoin with 50 million US dollars), but this is not completely crazy. It is just a more radical action of the current market development trend.
In the current global scope, more and more financial institutions have begun to provide related services based on Bitcoin. Just yesterday, DBS Bank, Singapore’s largest commercial bank, announced the provision of trading services for some encrypted digital currencies including Bitcoin. Singapore’s third largest commercial bank, United Overseas Bank, is also beginning to provide custody services for encrypted digital assets. In the US market, the trust transaction prices of Bitcoin and Ethereum issued by Grayscale Trust are all traded at a premium, and have never fallen below the corresponding net price. Grayscale has also been continuously buying bitcoin in large quantities. PayPal has also begun to provide its 300 million users worldwide with trading services including Bitcoin. The Toronto Stock Exchange of Canada is starting an ETF trading service based on Ethereum. This is a national-level exchange began to provide trading services based on Ethereum trading products. For Bitcoin, a product that is traded on a global scale, the recent entry of these mainstream financial institutions has provided a more solid foundation for the growth of Bitcoin transaction prices.
Bitcoin transactions can be viewed from at least two dimensions, compliance and non-compliance, retail customers and institutional customers. In the early days of Bitcoin trading, the main trading force in the market was that retail customers were conducting non-compliant transactions. The development of Bitcoin trading has developed to the point that institutional clients have begun to trade in compliant trading venues. The largest part of the assets in the world is in the hands of institutions, so the current entry of institutional funds will definitely promote the rise of Bitcoin prices.
At this stage, the value nature of Bitcoin is no longer the focus of market attention. Two years ago, the value nature of Bitcoin was still the focus of market attention. At the Consensus Conference in New York in May 2018, the organizers of the conference also provided a forum to discuss Buffett’s not long ago that Bitcoin is the square of rat poison. Forum participants analyzed and discussed why the value of Bitcoin cannot be priced in accordance with traditional pricing methods. But today, two years later, Bitcoin has been recognized as a mainstream trading product. Its nature is no longer discussed in the market. This phenomenon shows that Bitcoin has been accepted by the market. The market is more concerned about whether it can be easily bought and sold, how its price will be affected, whether there is sufficient liquidity, and other specific issues about trading products. From this perspective, Bitcoin as a trading product is beginning to be more similar to gold. At present, traders of gold trading products in the secondary market, no one is seriously considering the practical value of gold. They are most concerned about the future trend of the price of gold, and what factors determine whether they should hold, how they hold or how much.
The judgment of the US market on Bitcoin trading products is inseparable from the regulatory attitude. The SEC, which regulates the U.S. securities industry, has clearly stated that Bitcoin and Ethereum are not securities products and therefore do not need to operate in the U.S. market as securities products. The CFTC, which oversees the US commodity futures industry, approved derivatives exchanges to provide bitcoin-based derivatives trading services as early as 2017. So today, CME has become the largest holder of Bitcoin futures. In the U.S. banking industry, the OCC, which oversees the U.S. banking industry, made it clear this year that U.S. banks can provide services to encrypted digital currency companies and provide U.S. dollar custody services for issuers of digital stablecoins. These actions of OCC alleviate the concerns of Bank of America on the compliance of services provided in the field of encrypted digital finance. As a result, the US encrypted digital financial market has smoother exchange channels between legal currency and encrypted digital currency, and more U.S. dollars can therefore circulate in the encrypted digital currency field, including Bitcoin. The huge increase in the issuance of digital dollar stablecoins in the US market is also conducive to the active Bitcoin trading. All these factors are the reasons for the recent rise in the price of Bitcoin.
So there will be no risks for Bitcoin from now on? Will there be a sharp drop? Didn’t MicroStrategy consider these factors? MicroStrategy cannot fail to consider these factors. The gray rhino factor affecting the price of Bitcoin is still very obvious. The big shocks in the future are also very certain (see my article and talk about the value and risks of Bitcoin ). But for traders, it is not certain how much it will fall. Did it fall to US$50,000, US$30,000 or US$3,000? I believe that MicroStrategy still maintains strong confidence in Bitcoin after considering all these factors, so I would rather borrow 550 million US dollars to hold Bitcoin.
Recently, after a meeting between the finance ministers of the G7 and the central bank, the G7 agreed that it is necessary to strengthen the supervision of digital currencies. This refers to the supervision of all encrypted digital currencies including Bitcoin. For Bitcoin, this aspect of regulation has at least two implications. First of all, the US SEC has determined that Bitcoin is not a security product, so its operation does not have to meet the requirements of a security product. It will not be banned. Secondly, as a trading product, it needs to meet relevant compliance requirements, including identity authentication and anti-money laundering, as well as relevant regulatory requirements. This shows that G7 will develop systems and adopt regulatory measures to regulate the current encrypted digital currency market. This will definitely lead to significant market volatility. But this will further improve the market infrastructure and lay a more solid foundation for the long-term growth of Bitcoin prices. After that, changes in the price of Bitcoin will depend entirely on market judgments and will not be affected in terms of compliance. This is a long-term positive for Bitcoin.
It is precisely because of these developments in the market that Bitcoin is becoming a trading product that is accepted by the market, and more funds will enter this product. Even if there will be substantial volatility in the future, its long-term rise is a high probability event. This is why MicroStrategy seems to be crazy buying behavior in the market.
