This may end up in being quite a long post so please bear with me.
First a little background, in early 2018 I set up a company in the UK which since the beginning has been profitable, rather than take out the profits as wages or dividends, since July 2018 I’ve been using company profits to regularly buy Bitcoin.
For those who are interested in the technical aspects of how to do this it is quite simple. Bitcoin purchases can be made by a director of the company using their personal account at an exchange and then the company paying for the bitcoin via the DLA (Directors Loan Account) facility. As long as the company owned Bitcoin is ring fenced from any personal holdings, i.e. a separate wallet or address you’ll have no problems. In terms of accounting, I log all bitcoin purchases as an ‘Intangible Asset’ just like you would if you bought a domain name or trademark. When my end of year accounts are produced by my accountant the Bitcoin is shown as Investment at the price paid from the exchange (not the current book price).
I’ve been doing this for two and a half years now without a problem. Obviously save all the receipts and emails and make sure that the bitcoins are ring fenced and you should have no problems. By following this method (in the UK at least) your company can now legally own and hold Bitcoin as a strategic asset just like Michael Saylor’s MicroStrategy is now doing.
In addition to this in May 2020 the government offered all companies something called a Bounce Back Loan where the company could borrow up to £50,000 at a very low interest rate. It was perfectly acceptable and within the rules to use this money to buy Bitcoin, which was around £8,000 at the time. For anyone that took advantage it’s worked out very well.
In summary so far, it is possible that any business can buy and hold Bitcoin as part of their assets which is what MicroStrategy has recently started doing.
However there is a huge difference between what I have been doing and what Michael Saylor is doing and this is where things begin to get interesting.
As MicroStrategy is a $5 billion dollar plus company, they have the advantage of being able to issue corporate bonds which currently pay 0.75% interest, i.e. MicroStrategy has access to nearly unlimited amounts of near to free money. This money can then be used to buy Bitcoin at very little cost to the company.
In this respect MicroStrategy is not a special case, every company with a $1 billion market cap has access to the same facility, it’s just that MicroStrategy was the first to the Bitcoin corporate party.
Once other companies cotton on to this, we are going to see every company use this method to buy Bitcoin as a strategic asset at negligible cost. Those that do it first will be those that achieve the biggest gains.
So what we are going to see is that companies with near enough unlimited access to very cheap money start bidding up the price of Bitcoin, more and more companies will be chasing a ever smaller supply of Bitcoin.
Eventually I predict that Bitcoin could for a short time go ‘No Offer’ where Bitcoin is not available for ANY price. The mania of Dec 2017 will look tame in comparison to what is about to happen.
Under any normal circumstances such a situation would be cooled down by the Federal Reserve by increasing interest rates to a level where the trade was no longer seen as a one way bet. However the Fed have boxed themselves into a corner where even a 100 basis points increase could make the US Government not only be able to carry out its stated programs but could quite easily lead to a debt default aka bankruptcy. In other words the Fed is powerless to stop this from happening, and if anything will hasten it by further lowering interest rates either to zero or negative (in which case companies insanely would be paid to take out loans to buy Bitcoin).
What I have outlined above can’t be stopped and is going to happen this year.
It’s a genius play by Michael Saylor and the returns for MicroStrategy and long term holders will be off the scale.
As a side note…. We must also remember that all US dollars are created as debt, so when someone borrows $1000 it is created into existence by a bank. The key thing is that only the principle ($1000) is created but the money needed to pay the interest on the loan is NEVER created…. So where does the money come from to pay the interest? By creating more debt of course…. In order for the system to function properly a steady supply of new debt needs to be created so that not only the existing principles can be paid but also the associated interest as well.
What does this mean…..
Well in 2021 lots of businesses will be in survival mode, there will be no appetite for new debt (outside of the Saylor play) for expansion or new equipment. Without new debt being created the current system will collapse as there will not be enough dollars to pay the interest on the outstanding debt. Therefore I predict that vast amounts of new debt (money) will be taken on by the government and handed out in the form of soft loans, grants, stimmy cheques, helicopter money, UBI, etc, etc.
The massive money printing required to keep the system from falling over as GDP tanks will also add fuel to the fire in terms of the price and demand for Bitcoin.
TLDR…. 1) It is easy for a company to own Bitcoin. 2) A perfect storm is brewing, nothing can be done to stop it, the price of Bitcoin has no upper limit, not only are we going to the Moon but to distant galaxies far, far away. Buckle up as things are going to get very interesting very quickly.