Bitcoin’s short-term volatility is largely irrelevant once you understand the fundamentals of the leading cryptocurrency and how difficult it would be to create something better, says MicroStrategy CEO Michael Saylor.
“Bitcoin is the most certain thing in a very uncertain world, it’s more certain than the other 19,000 cryptocurrencies, it’s more certain than any stock, it’s more certain than owning property anywhere in the world,” he said in an interview with The Block last seen. week after attending CoinMarketCap’s The Capital virtual conference.
People who have spent at least $100 on bitcoin can talk about the cryptocurrency, Saylor admitted, but otherwise they “probably wouldn’t have anything to say about it.”
MicroStrategy’s bet on bitcoin
Saylor’s software company holds a massive position in bitcoin — ownincluding through subsidiaries, around 129,218 bitcoins – and he has become a leading supporter of cryptocurrency since being added to his company’s balance sheet in August 2020.
MicroStrategy’s most recent purchase, revealed in an April 5 filing, was the acquisition of 4,167 bitcoins worth approximately $190.5 million. at the timewhile bitcoin traded at $45,714.
The company acquired all of its bitcoin holdings at an average price of $30,700. With bitcoin trading at $29,716.37 On Sunday, Saylor’s company is in the red on its purchases – although it has no plans to sell, he said.
He said bitcoin would have to fall 95% before the company would consider doing anything, even then he said. said in the past, the company could deposit alternative sureties.
In order to finance its bitcoin bet, MicroStrategy took out three loans between December 2020 and June 2021 by issuing senior convertible bonds and senior secured bonds.
Senior convertible bonds are debt securities that contain options to be converted into a certain amount of the issuer’s equity upon maturity. When they mature, they must either be converted into shares, redeemed in cash, or a combination of both. Senior secured notes are loans that use the assets of the issuer as a form of collateral.
MicroStrategy issued senior secured notes in June 2021, secured by assets including any bitcoin purchased at or after closing of the offering. Yet it did not include any of MicroStrategy’s existing bitcoins, nor any that could be purchased with proceeds from existing bitcoins or other holdings.
MicroStrategy and Bitcoin, a difficult course in May
In May, MicroStrategy stock price hit a 20-month low of $159.67 before recovering to close the month at $246.65, still down from an open of $355.68. During the month, the company’s bitcoin position fell into the red, where it remains.
Bitcoin prices fell in May as the cryptocurrency market, as well as broader financial markets, were in turmoil. After an initial crash in crypto prices earlier this month, and as the broader macroeconomic environment deteriorated, prices plunged further amid the collapse of the Terra blockchain, following the failure of its stablecoin, TerraUSD (UST).
This contagion dragged bitcoin below $30,000 as it fell to its lowest level in 18 months since trading at around $27,000 on December 21, 2020. While many observers said this was clear evidence of a crypto bear market, Saylor said he was unconvinced.
“I don’t know if it’s a bear market or not, but if it’s a bear market, then we’ve had three in the last 24 months,” he told The Block. Saylor was referring to April 2021, when the price rose to $60,000 before falling back to around $31,000 in July 2021 and then reaching all-time highs of $69,000 in November 2021.
Saylor said he prefers not to get caught up in short-term prices, adding that people who focus too much on charts are “playing with tea leaves.”
His take: “If you’re not planning to hold it for four years, you’re not really an investor, you’re a trader, and my advice to traders is don’t trade it, invest in it.”
TerraUSD and bitcoin as a reserve asset
One of the main reasons bitcoin and crypto prices fell in May was the capitulation of TerraUSD and luna (LUNA), the two main offerings on the Terra blockchain.
Terra’s ecosystem is under pressure after its stablecoin, TerraUSD, lost its peg against the dollar on May 7. A shared relationship between TerraUSD and luna then dragged the two down, even though TerraUSD had a “foreign exchange reserve” of over $3 billion in bitcoin which it unloaded in a futile attempt to defend its peg.
TerraUSD had a burning mechanism involving luna so that anyone holding TerraUSD could redeem a token for $1 worth of luna tokens in the event of an unpeg – if TerraUSD was trading at $0.95 for example.
This would make TerraUSD rarer and was supposed to bring the price back towards $1, also allowing holders to take advantage of the price difference and potentially earn an arbitrage profit, incentivizing them to maintain the peg.
Yet after TerraUSD lost its peg to the dollar on May 7, the Luna Foundation Guard (LFG) – a non-profit organization managing Terra’s foreign exchange reserve – used most of its reserves to buy UST in an attempt unsuccessful to defend the anchorage.
Despite the collapse of TerraUSD and the depletion of its bitcoin reserves, Saylor maintained that bitcoin is a valid reserve asset.
“I think it all comes down to the amount of leverage. I think it makes a lot of sense to use bitcoin as a reserve asset,” he said, noting that with reasonable leverage, like owning $1 billion worth of bitcoin and issuing $50 million of a stablecoin, there would be much less risk. with the use of bitcoin as a reserve asset.
The problem with Terra was not so much the idea of owning bitcoins, he said, but that they had too much TerraUSD in circulation.
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