Billion-Dollar Firm MicroStrategy Invests $250 Million in Bitcoin as Part of New Capital Allocation Strategy
Sarah Tran Aug 11, 2020 11:30
Publicly-traded billion-dollar software firm MicroStrategy announced its new capital allocation investment strategy — with a purchase of 21,454 Bitcoins. MicroStrategy is the largest independent publicly-traded business intelligence firm used by many of the Fortune Global 500 brands.
Publicly-traded billion-dollar software firm MicroStrategy announced its new capital allocation investment strategy — with a purchase of 21,454 Bitcoins. MicroStrategy is the largest independent publicly-traded business intelligence firm used by many of the Fortune Global 500 brands.
Under the current period of economic uncertainty, investors, as well as companies, are looking to invest in Bitcoin. MicroStrategy announced last week that it plans to invest up to $250 million in alternative assets in the coming 12 months, and Bitcoin was considered as a key option.
MicroStrategy announced today that the company has purchased 21,454 Bitcoins at the purchase price of $250 million inclusive of fees and expenses.
The investment decision was made as part of the company’s two-pronged capital allocation approach as announced in the company’s second-quarter 2020 financial results in late July this year. Michael J. Saylor, the CEO of MicroStrategy explained:
“Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders. This investment reflects our belief that Bitcoin, as the world’s most widely-adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash. Since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions. MicroStrategy has recognized Bitcoin as a legitimate investment asset that can be superior to cash and accordingly has made Bitcoin the principal holding in its treasury reserve strategy.”
Why Bitcoin?
According to a press release shared with Blockchain.News, Saylor mentioned that MicroStrategy deliberated the capital allocation strategy for months. The final decision to invest in Bitcoin was driven by the macro factors affecting the economic and business landscape. The firm believes that due to the current economic turmoil, caused by the COVID-19 pandemic and global political issues, could pose risks leading to the depreciation of fiat money. As the US federal has been printing money as part of its stimulus check, the confidence has dropped for the long-term real value of fiat currencies.
“We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility, and community ethos of Bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value,” said Saylor. “Bitcoin is digital gold – harder, stronger, faster, and smarter than any money that has preceded it. We expect its value to accrete with advances in technology, expanding adoption, and the network effect that has fueled the rise of so many category killers in the modern era.”
As explained by Saylor, the COVID-19 crisis has accelerated the advances in technology and the shift in market requirements. Phong Le, the President and CFO of MicroStrategy said:
“MicroStrategy believes that buying $250 million in Bitcoin will provide it the opportunity to earn better returns and preserve the value of our capital over time compared to holding cash. Our corporate strategy and two-pronged capital allocation strategy are designed to benefit shareholders, customers, partners, and employees.”
Bitcoin’s value to increase fivefold by 2023
Bitcoin’s price in 2020 has beaten stocks, gold, and many other assets in year-to-date return on investment (ROI). Even billionaire hedge fund manager Paul Tudor Jones has stated that he has just over 1 percent of his assets in Bitcoin.
According to a British hedge fund manager with tens of billions of pounds under management, Bitcoin could trade at $40,000 to $50,000 within two years in the best-case scenario. Bitcoin (BTC) could see a fivefold increase in value in 2023, as traditional investors enter the market.
The British fund manager echoed Jones’ statement regarding Bitcoin and gold, saying that the case for owning Bitcoin was the same as the case for owning gold. Bitcoin is seen as a safe haven, similar to gold which acts as a store of value when central banks around the world are printing money freely.
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