Ross Stevens, CEO of Stone Ridge and executive chair of New York Digital Investment Group, was an early corporate adopter of bitcoin. The only cash he keeps is for the payment of immediate bills.
“Cash is now a liability, it’s no longer an asset. That has profound implications for corporate balance sheets,” he told a recent bitcoin conference for senior executives, explaining the logic of adopting bitcoin rather than cash as a store of value.
“A CEO has two jobs, executive and capital allocator. The first one is obvious, the second one is the CEO’s most important job,” said Stevens.
The conference was convened by MicroStrategy CEO Michael Saylor, who challenged Tesla CEO Elon Musk to follow his example and shift some of his balance sheet cash into bitcoin. Shortly thereafter, Tesla announced that it had put $1.5 billion of its $19 billion cash and near-cash into bitcoin.
The US dollar has depreciated by 3.38% a year since the end of the Second World War, and is today worth just 7% of its value in 1946. That depreciation has accelerated in the last decade, and any CEO planning 10 or 20 years into the future must now consider what is a safer store of value – cash, bitcoin or gold. The evidence is strongly in favour of bitcoin, says Saylor.
You can check out this interview by Bloomberg with Saylor here.
Saylor says with M2 money supply growth in the US at 25%, the cost of capital has exploded. Holding cash yielding negative returns is the road to serfdom. The S&P 500 index is up nearly 25% over the last year, so any executive would have to beat that return to justify their existence, otherwise return cash to shareholders.
On the other hand, bitcoin is up 460% over the last year, compared to 53% for the Nasdaq, 9% for gold and a negative 7.7% for US Treasury long bonds.
“Why bitcoin? You can’t hold traditional treasuries [because] you’re looking at a negative real yield of 15-25% a year. I have to manage shareholder value, and to grow that you have to grow your assets at a rate faster than the cost of capital,” says Saylor.
Any manager offering to generate returns of 1-3% return on capital will face shareholder demands for that capital to be returned. Bitcoin’s annual compound growth rate is 198% a year.
“Bitcoin is the hardest money on earth. It’s an institutional grade safe haven asset. It’s gold without all the imperfections of gold on a digital monetary network that moves at the speed of light that you can programme to do a million transactions a second,” adds Saylor.
“Why would you want it? For the same reason you would want to run electric power to your city or running water to your building.”
Bitcoin’s primary benefit as a money and store of value is that its issuance is capped at 21 million coins (there are currently 18.6 million in issue). It can never be inflated beyond that. The fact that it is electronic allows for payments and transfers at the speed of light.
“I think conventional treasury strategy is now intellectually and morally bankrupt and is a road to serfdom,” says Saylor. “You’re going to find increasingly there’s haves and have nots. There’s the elite that has incredible power like the Googles and Amazons and the Apples and they have more money and power and distribution than God.
“Then you have conventional businesses that have conventional cash flows and they are being increasingly marginalised.”
It is these conventional businesses that are expected to invest all of their capital in a currency that is devaluing at 15% or 20% a year, while the Big Tech monopolies are easily able to outpace the cost of capital because of the power they have accumulated – what Saylor calls the Main Street versus Wall Street dichotomy.
All conventional currencies are correlated to the US dollar, creating a race to the bottom as the dollar continues to devalue.
Companies that are asset-rich benefit from central bank money printing. Those that are cash-rich and asset-poor are subject to the steady debasement of their currency holdings.
In an environment where money supply was expanding at 0% a year, executives could focus on manufacturing or delivering services. Instead, money supply is being expanded at 25% a year, pushing businesses towards a Venezuela or Argentina situation, where business values in local currency terms tend towards zero as money supply accelerates (unless they switch into harder currencies).
Regulation has upsides
More regulation of cryptos is sometimes seen as negative for bitcoin, but Saylor believes it could increase institutional demand 10 to 100-fold due to the added regulatory oversight. In other words, there are virtually no downsides for bitcoin.
When China and India tried to regulate bitcoin, this merely increased the price for those already holding the asset, proving it is relatively immune to negative regulatory interference.
MicroStrategy is not just buying bitcoin with its available cash, it’s also leveraging its balance sheet to acquire more of the crypto. “We believe there is $100 trillion market total addressable market for a digital monetary network. It makes sense to buy as much of that asset as we can,” Saylor told Bloomberg.
What about the famed volatility of bitcoin?
Ross Stevens says bitcoin is not volatile.
“Learning bitcoin is like learning a foreign language. I now think in bitcoin. Bitcoin is not volatile – fiat is volatile. Fiat keeps getting cheaper in bitcoin terms.
“Money is technology. There’s not a line of distinction between what’s money and what’s not. No money is the best money, there’s always trade-offs. Bitcoin likely won’t last forever, because at the end of the day it’s a good.
“Why is bitcoin better than fiat? Because, young as it is, it holds its value over time.”
Stevens adds that bitcoin is the first store of value in history where supply is entirely unaffected by demand.
“Another requirement of money is its saleability across space – can you move it? Gold is hard to move. Bitcoin moves faster than fiat across space, with settlement completed in about an hour. There is no credit risk with bitcoin.”
Visa and Mastercard may allow you to purchase a coffee in seconds, but settlement can take up to a few days. That’s because of the various intermediary players in the transaction chain.
Another argument against bitcoin is its excessive consumption of electricity for mining it. Stevens says as bitcoin prices rise, mining it will become the most profitable use of energy in the world. Bitcoin mining will enable the monetising of clean energy sources such as waterfalls and rivers in remote areas. “In time, people will migrate to cheap, clean energy sources. That’s a fundamental shift in energy supply and demand. In the past, the challenge was to move energy to population centres. This could reverse that.”
Stone Ridge has maintained all its reserves in bitcoin since 2017, and only keeps sufficient cash for paying the immediate bills.