Institutions are rushing into bitcoin. The new demand should push the price of the digital coin back to $65,000 in the days ahead, observes technology sector specialist Jon Markman, editor of Strategic Advantage.
The German government announced it will allow institutional funds that currently control $2.1 trillion to invest up 20% of their assets in bitcoin. This mainstreaming of crypto is a big development. It means prices are likely to surge. Investors should consider buying MicroStrategy (MSTR).
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The bearish argument against crypto is that digital coins do not represent a store of value and therefore there is no demand from so-called real investors. However, institutional investors are as real as it gets.
The rule change in Germany is likely the result of intense lobbying by professional investors clamoring for the opportunity to add bitcoin, even for their most conservative accounts.
Institutional demand for bitcoin is significant. Last year Paul Tudor Jones, and Stanley Druckenmiller, two titans of the hedge fund world, began allocating funds to cryptocurrency. A portfolio manager at Soros Fund Management told Bloomberg in March that intuitional investors see bitcoin as a hedge against shrinking fiat currencies.
Global central banks are creating new currency at an unprecedented rate. The Federal Reserve is currently buying $120 billion worth of treasury and mortgage-backed securities every month. The dollars used to fund these purchases are being digitally created out of thin air.
Although the economy is improved and many would argue inflationary pressures are building, there is no sign this strategy to flood the system with liquidity will change anytime soon.
Bitcoin is capped at 22 million units. It is decentralized and cryptographically secure. Nobody has direct control. And blockchain, its public digital ledger cannot be altered for any reason. It is a permanent record of every transaction. Scarcity and protection against fiat currency devaluation is the argument for bitcoin. It is why professionals are want in.
The German strategy shift impacts Speziafonds, fixed asset investments that are only accessible by pension companies and insurance funds, according to a report Saturday at Bloomberg.
The further mainstreaming of bitcoin follows a decision in February at Bank of New York Mellon (BNY), the nation’s oldest bank. The Wall Street Journal reported the giant custody bank will begin to hold, transfer and issue cryptocurrencies on behalf of its asset manager clientele.
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MicroStrategy is the mullet of tech businesses. Up front it is all business. The company is a profitable buttoned-down enterprise software company. In back, the firm is pure party. It is a leveraged bitcoin investment. The Tysons, VA.-based company now holds 105,000 bitcoins.
Michael Saylor, chief executive officer decided in 2020 that owning bitcoin would create more shareholder value than holding cash. Then Saylor started selling debt to buy even more bitcoin. He has issued convertible stock to buy bitcoin. And most recently the firm completed a Dutch auction to potentially buy more again. The average cost of bitcoin acquired by MicroStrategy is $26,080.
The strategy might seem reckless yet shares zoomed from about $120 in 2020 to a peak of $1,305 in February 2021. It helps that the software business generated $83.8 million in free cashflow during the past 12 months. That’s ample to run the business and service debt. The outcome is a leveraged bitcoin investment with capable managers.
In theory, the leverage should give MicroStrategy shares a premium to a simple bitcoin investment. This assumes the price of the digital coin continues to rise.
The German news and the arrival of more institutional investors strongly suggests that will be the case. A lot of new money is headed into bitcoin. Investors looking for a leveraged bitcoin play should consider MicroStrategy.
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