Not Satoshi's vision: Is MicroStrategy in danger of becoming Bitcoin's central bank?
06/22/2021 | 07:51am EDT
Something strange has happened over the past several months, and it’s transpired right under everyone’s noses – Bitcoin has become centralized.
During the course of the pandemic, one by one, publicly traded companies have lined up to buy (relatively) cheap BTC, but one has outbought them all. Microstrategy now holds more than 105,000 total Bitcoin holdings worth somewhere in the region of $3.5 billion, after this morning’s announcement, making the company the world’s the second largest holder of the leading crypto.
These stacked sats, and the implications of being a publicly traded company holding so many, have left many people with expectations that they may be forced to live up to as the markets struggle to find support.
Just like many others in the industry, I’m a member of many (too many) trading groups and collectives across all the apps. This week, though, something happened that hasn’t happened before. People started openly wondering if Microstrategy would ‘bailout’ Bitcoin.
Think about that for a second.
Satoshi Nakamoto, whomever that person (or persons) may be, initially created Bitcoin as a reaction to the government bailouts during the Great Recession. The whole point, according to Bitcoin’s white paper, was to avoid the centralized policy making that BTC’s creators thought might potentially doom traditional forms of money such as the US Dollar, and other failed currencies including the Russian Ruble, Zimbabwe Dollar, and so on.
Where it started
Last fall saw Michael Saylor — who, until recently, was a relatively unknown, middling CEO with a mediocre track record and a dubious history of spending company funds — all of a sudden catapulted into quasi-celebrity status because he used money that isn’t even technically his to buy billions worth of Bitcoin, and stake his entire company’s future on it.
At first, Microstrategy used cash-on-hand (treasury assets) to buy Bitcoin. Widely hailed in the cryptosphere, it was questioned or seen as foolish by many in traditional markets. Even then, though, as MSTR’s price began to skyrocket, a lot of that doubt subsided – until the company pivoted to issuing debt to buy further amounts of BTC.
How it’s going
China’s increasing crackdown on Bitcoin has brought significant downward pressure, and with prices now revisiting lows not seen since January, people are starting to look for a white knight, a savior to solve their problems and send BTC higher. They’re increasingly looking for a centralized entity that has the power to create a plan to install a price floor and keep things from getting too far out of hand.
Based on MSTR’s entrypoint late last year, Saylor needs BTC to stay above $20,000 to remain profitable. Downward price action on Bitcoin earlier this year caused him to instruct Microstategy to issue debt (sound familiar?) to buy more Bitcoin (again, familiar?) in order to prop up its price (very familiar).
Microstrategy has taken the role of a central bank, to a degree, issuing debt to artificially raise the price of an asset deemed systemically important by many. The very same people ridiculing the Federal Reserve with memes saying “money printer go brrrr” celebrate virtually the same action from a publicly traded company because it aligns with their goals – funny how that works.
Aside from worrying about the long-term implications to Microstrategy’s finances, and what the fallout would be if the bottom ever fell out from the digital assets market, this whole development is the antithesis of Satoshi’s vision.
But, will there be another Bitcoin bailout?
Ryan Gorman is co-founder of Trade The Chain, a global Discord community of traders using AI-driven sentiment indicators and real time, actionable alerts to make more informed trading decisions.