Bitcoin has finally gotten to the point where companies truly understand its value proposition and the political context provides all the incentives to dump fiat. It has taken the project almost 12 years to finally find its place in mainstream markets, and this time around it really seems like the situation is going to be different.
Maybe that the community infighting during the scaling debates didn’t help, and the fact that early bitcoiners were trying to replace Visa with on-chain transactions was unrealistic in regards to what Bitcoin is. But these failed experiments and the bear markets that followed them have only made Bitcoin more resilient and have helped everyone truly understand its nature and purpose.
In 2020, hedge funds have made a historic step in accepting BTC as a reserve asset. Legendary investor Paul Tudor Jones has also contributed to the legitimation of Bitcoin across mainstream markets. Then came companies such as Square and Microstrategy. And after this, a valuable realization came around: Bitcoin is the perfect asset to store value for multiple years.
By holding Bitcoin, companies can opt out from inflation & taxation, then borrow fiat against it
In the United States and most jurisdiction, there is no tax involved in buying bitcoins and holding them – you only pay capital gain taxes when you decide to sell for fiat. But in a time when fiat currencies lose value to inflation, holding cash reserves is a terrible idea – or as Microstrategy CEO Michael Saylor put it, “like sitting on a melting ice cube”.
So when a company purchases BTC, it’s a long-term move that’s meant to protect the assets against the unpredictability of politics and financial markets. Sure, Bitcoin can go down in market valuation and is highly volatile. But it’s the only “bubble” in history which keeps on re-inflating every few years due to the diminishing supply of new coins and the increasing demand for BTC. Bitcoin is disinflationary thanks to its mining issuance program, and will become completely deflationary in 2140 when the last mining reward gets collected.
In a world where the fiat experiment shows signs of failure, it makes very little sense to hold reserves in infinitely inflationary currencies. If you want to maintain your purchasing power, you must turn to scarce assets that are also in high demand.
Historically, precious metals such as gold and silver fulfil the role of allowing people and companies to hedge against fiscal policy and preserve wealth. But Bitcoin is more portable, easier and quicker to trade, cheaper to verify, and is also provably scarce. By running a node, you have information about everything that takes place on the Bitcoin blockchain – you know all about transactions, you can verify the validity of incoming coins, and you can permanently check the existing supply of BTC to make sure that the network functions the way it was designed.
Now here’s yet another interesting fact: you can keep your scarce digital money by lending fiat against your BTC. There are many services which allow you to do it (Celsius, BlockFi and Nexo are only three of them), and it’s a great way to survive in the fiat economy without having to sell your bitcoins. Furthermore, you don’t pay any taxes if you lend money. So this is extra convenient for companies that hoard Bitcoin reserves and sit on them for multiple years.
Regular people need Bitcoin for censorship resistance and wealth protection. Companies need Bitcoin for world domination.
If you accumulate 1 BTC, it’s likely that you dream of buying a nice house and a car. Anything to improve your living standard and help you enjoy your life a little more.
But if you’re a company holding bitcoins, then your goals should be a lot more ambitious and transcend the fiat status-quo. In a Bitcoin standard, a company which owns large reserves is going to dominate markets and play a major role in political decisions.
So if your goal is to exchange your bitcoin for a Tesla, then you should probably think twice. There are only so many bitcoins, they are in high demand during these troubled times, and you may get a better deal in the near future when more companies wake up and decide to put their reserves into Bitcoin.
The more people HODL and the stronger their conviction is, the more significant their role is going to be in the post-fiat economy. But in the end, it all comes down to your expectations and your time preference. Some people play the long game, others just want to enjoy the moment. There is no wrong approach, just different goals. Nonetheless, you’ve been warned: they’re coming for your bitcoins!
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