We live in an environment where there is a high degree of concern and uncertainty about the implications of the decisions taken by the major Central Banks. Nobody knows what is going to happen.
There are some who claim that we live in a constantly deflated environment, so generating trillions of dollars has no negative impact. Others believe that we have taken the first step towards the nightmare of hyperinflation.
Most likely the truth is somewhere in between. In any case, fund managers and CFOs of large companies have to look for a cash compensation. It is more irresponsible than prudent to keep 100% of their cash or cash equivalents in dollars or euros, even if they do not believe in the inflation scenario. From what the past has shown us, whether high levels of inflation appear or not do not matter much. Its fear is enough to lead to a devaluation of the currency and capital flows into inflation hedging assets.
Is Bitcoin capable of protecting us from the flood of money if things do not go as the rulers hope? Ark Investment Management’s Cathie Wood, speaking to Bloomberg, said there are many uses for Bitcoin, but probably the most important is that it serves as a worldwide insurance policy against foreclosure.
This can happen in two ways, Wood continued. The first is inflation and is currently the best offset there is. Better than gold. The second concerns the protection against the confiscation of wealth, for example by irresponsible or authoritarian governments. If you think there is a 5% chance that this will happen, you should put 5% of your portfolio into something like Bitcoin. With this you can go abroad, with the keys only in your mind.
As Cathie Wood stated in another interview with CNBC, she expects a tsunami of cash to go to Bitcoin. If all US listed companies follow the example of Tesla, Square, MicroStrategy and invest 10% of their cash in Bitcoin, it will rise to $200,000, with a market capitalization of $5 trillion. And not just that; it can even serve as a reserve currency in the future.
Do you find the forecast daring? So did those who listened to Cathie Wood in early 2020. But in the end it was she who laughed last, as she stood out in 2020 from her successful predictions of big tech names like Tesla and Square.
On the other hand, a question arises at the same time with this thought: is it wise for companies to risk their cash on such a volatile asset, but Bitcoin? But mainly, what do investors think about it?
MicroStrategy had a market capitalisation of $1 billion in July 2020. The company’s current valuation is approximately $6.6 billion. If you subtract the $4.5 billion Bitcoin that is on their balance sheet, it is obvious that its value has increased by 170% in about 7 months. This increase shows no protest or dissatisfaction. Rather applause. The case of MicroStrategy cannot but be a problem for every CEO and CFO of a large company.
When MicroStrategy made its debut, it was a relatively unknown company. Square was already in the field of digital payments and Jack Dorsey was an ardent supporter of Bitcoin, so the company’s decision to have 5% of its total capitalisation in Bitcoin did not make much of an impression. But Tesla was something different. As eccentric or strange as one might think of Musk, he is still one of the richest people in the world and one of the most valuable companies in the market.
Elon Musk and Jack Dorsey are considered two of the most successful entrepreneurs in the world. If it’s good enough for them, there will definitely be another CEO in the world who thinks Bitcoin is good enough for their company. What will happen if Amazon, Apple, Microsoft, Google decide to make the same decision? Why not a president who will want to take advantage of it for the benefit of his country or a Central Banker who will want to diversify his foreign exchanges reserves?
When this day comes, which will not be late, many believe that shopping frenzy will prevail. The biggest global fear of missing out in history will start. Every individual, company, financial institution, and central bank will compete to get their share of the 21 million bitcoins.
