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Senators and regulators explain why the $60 billion collapse of a major cryptocurrency is not the industry's Bear Stearns moment
According to MicroStrategy CEO Michael Saylor, the company also serves as the first and only bitcoin spot exchange-traded fund in the United States.
MicroStrategy may be in the business of commercial software and cloud-based services, but CEO Michael Saylor claims the publicly traded company also serves as the first and only bitcoin spot exchange-traded fund in the United States.
"We're like your nonexistent spot ETF," Saylor explained to CNBC on the sidelines of the Bitcoin 2022 conference in Miami.
So far, the Securities and Exchange Commission has only approved ETFs that track contracts gambling on bitcoin's future price, rather than the cryptocurrency itself. The SEC has refused to approve any of the formal applications for a pure-play bitcoin-based ETF — a financial instrument that would allow investors to invest in bitcoin without having to sign up for an exchange, open a crypto wallet, or deal with any of the other logistics associated with buying and holding bitcoin.
"If there were a spot ETF, you'd pay a 1% cost and it wouldn't be leveraged." "With MicroStrategy, we have a software company that creates cash flow, therefore we transfer our cash flows into bitcoin," Saylor added, adding that the de facto MicroStrategy bitcoin spot ETF generates a 4% to 5% tax-deferred dividend.
Saylor founded MicroStrategy in 1989, and the company has been adding bitcoin to its corporate balance sheet for the previous two years. The corporation has now spent over $4 billion on bitcoin acquisitions at an average price of $30,700.
Saylor has no intentions to stop purchasing bitcoin, which will only increase MicroStrategy's exposure to the digital asset.
"Why should we ever stop?" he wondered.
"As we generate cash flows, we believe that the responsible thing to do for our shareholders is to convert currency that is depreciating into an asset that is appreciating," said Saylor, who also stated that MicroStrategy is not diversifying because the company owes shareholders a consistent strategy.
"If you want to be 2% exposed to bitcoin, you'd put 2% of your portfolio into MicroStrategy, and the other 98 percent of your portfolio might be invested in anything." They don't want an unpredictable and random CEO of a publicly traded company."
Normalizing bitcoin-backed finance
When MicroStrategy first included bitcoin on its balance sheet in August 2020, it was a controversial move.
This was at the end of the crypto winter, when the coin was trading in the low $11,000 level and many institutional investors and major Wall Street banks were still bearish on digital assets.
However, Saylor's decision proved to be foresighted.
As the boom in bitcoin began in earnest in October 2020, old-school, billionaire hedge fund managers such as Stanley Druckenmiller reversed direction and began buying bitcoin. Tesla, Block (previously Square), and insurer MassMutual all followed suit, investing hundreds of millions of dollars in bitcoin.
This level of general adoption is critical since cryptocurrencies like bitcoin are not backed by an asset and do not have the complete faith and support of the government. They're valuable because people think they're valuable. When some of Wall Street's greatest names purchase into bitcoin, it goes a long way.
Saylor's bitcoin evangelizing has contributed to his status as an A-lister in the community. Throughout the Bitcoin 2022 conference, Saylor would go around the Miami Beach Convention Center, trailed by a swarm of enthusiasts eager for a selfie with him.
Blue chip CEOs look to MicroStrategy's CEO for guidance on corporate adoption.
MicroStrategy has utilized company debt to buy bitcoin, and in March, Saylor took another step toward normalizing bitcoin-backed finance by borrowing $205 million and using his bitcoin as security – to subsequently buy more of the cryptocurrency.
"We've got $5 billion in collateral." We took out a $200,000 loan. So I'm not advising folks to take out a high-leverage loan. "What I'm doing, I believe, is trying my best to pave the road and standardize the bitcoin-backed financing business," Saylor said, adding that publicly traded crypto miner Marathon Digital also took up a credit line with Silvergate Bank.
"As individuals understand they can borrow against something, they realize they never have to sell it, and they start to stretch their time horizon from 'It's a 36-month speculation,' to 'It's a 36-year holding," Saylor explained to CNBC.
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