Why $100,000 Is Just The Start For Bitcoin
Bitcoin is having a moment.
Thanks in part to the anticipated pro-cryptocurrency attitude of the incoming Trump administration, Bitcoin is up 47% over the past month (and 165% over the past year), and today is within whispering distance of the $100,000 level.
A great time, and way, to buy Bitcoin: Two years ago, when we recommended the MicroStrategy “Bitcoin bond.”
Until August 2020, MicroStrategy (MSTR) was a ditchwater-dull software-as-a-service company that offered enterprise analytics and services to help companies make smarter, data-driven decisions. Then, though, MicroStrategy then-CEO and founder (and controlling shareholder) Michael Saylor found crypto religion, and replaced the company’s treasury cash with Bitcoin. MicroStrategy converted its $500 million cash pile into the cryptocurrency – and also issued $2.4 billion in low-cost debt (Bitcoin bonds) to accumulate roughly 130,000 Bitcoins.
On October 14, 2022, in The Big Secret on Wall Street we recommended the MicroStrategy 2025 0.75% Convertible Bond, as a way to profit from the likely appreciation of Bitcoin (then trading around $19,000).
At the time, the bonds were trading at around $750. And the prospects for Bitcoin were positive. We wrote then…
“As global central banks, including the Fed, return to their familiar playbook of cutting interest rates and expanding the money supply to deal with unsustainable global debt burdens, we see Bitcoin reaching new all-time highs and hitting $100,000… and that could be just the beginning of the next leg higher.”
The MicroStrategy 2025 bonds were called (which means holders could convert their bonds to 2.51 shares of MicroStrategy’s class A common stock, reflecting a $398 price per share) by the company on July 15, 2024 – up 406% from where we recommended them (in the Big Secret portfolio, we took profits early, for a still-solid return of 82%).
Since then, Saylor has doubled (and then some) down: The company recently announced a three-year plan to raise $42 billion (!) to buy more Bitcoin. Yesterday it increased the size of a convertible-note offering, from $1.75 billion to $2.6 billion, in response to soaring demand. The market capitalization of MicroStrategy has become Bitcoin on steroids, soaring nearly 800% over the past year.
Saylor has – for now – created an infinite money machine: He’s borrowing U.S. dollars – a debased currency that has lost 40% of its buying power over the past two decades alone, and is the vehicle of an epic debt bubble – and buying Bitcoin… which is in many ways the anti-dollar (or rather… the anti-fiat currency).
Bitcoin is created at the nexus of computation and energy. With supply capped at only 21 million coins (but divisible into virtually limitless fractions), Bitcoin could become a much better, new global reserve currency. It’s by definition immune from currency devaluation, and eliminates the silent theft of purchasing power through inflation that plagues sovereign currencies.
How Bitcoin Works
Every Bitcoin transaction is digitally encrypted onto a decentralized network, known as the blockchain. The blockchain is essentially a public ledger, maintained through a network of thousands of “nodes.” At each node, high-powered computers – known as miners – keep track of every Bitcoin transaction. These miners compile real-time Bitcoin transactions into data blocks.
When a given data block fills up, the miner adds it to the pre-existing block series. This process forms a chain of continuous transaction blocks. Thus the name blockchain – which is a self-regulating network with built-in incentives for computers around the world to compile and keep track of every transaction.
In exchange for lending their computing power to the Bitcoin network, miners are rewarded with entries into a lottery for each data block they create. The number of actual Bitcoins awarded in these lotteries declines over time, to ensure that the total number doesn’t exceed 21 million coins.
Bitcoin’s “productivity curve” is predicated by the extraordinary advances of digital technologies. It is a currency that’s designed to be stable relative to advances in computing. As a result, its value has soared relative to other currencies.
To ensure the security and integrity of the blockchain, 50% of the network nodes must approve each data block before adding it onto the blockchain. A bad actor looking to hack Bitcoin would need to rewrite the entire blockchain history with the new false version: Which is simply impossible.
The result is a secure self-regulating decentralized network, governed by a series of rules that eliminates the need of any central authority. That’s what makes Bitcoin the ultimate candidate for a global reserve currency – a neutral asset that exists outside the realm of sovereign governments and banking cartels.
What’s Next for Bitcoin
Globally, the M2 money supply is nearly $170 trillion. Meanwhile, the total size of traditional asset classes is in the hundreds of trillions of dollars.
This wealth is mostly concentrated in stocks, bonds, and real estate. Bitcoin’s current $1.8 trillion market capitalization is a rounding error compared with these traditional stores of wealth.
If just a small percentage of global wealth – and central bank reserves – found its way into Bitcoin, the cryptocurrency’s price would soar to levels that are orders of magnitude higher… to millions of dollars per coin, perhaps.
Why? In a world where overly-indebted governments print more and more of their fiat currency, inflating away their obligations, an increasing amount of those currency units will flow into alternative stores of value, like Bitcoin. And don’t forget… beyond providing a source of stable money, Bitcoin also allows seamless, secure peer-to-peer transactions with anyone around the world at the click (or two) of a button. Often referred to as the “internet of money,” Bitcoin’s decentralized nature eliminates interference from governments, thereby eliminating the threat of censoring transactions and currency devaluation.
We recommended Bitcoin in May 2023 and it’s risen 249% since then. And in Porter’s Permanent Portfolio, we recommend holding 12.5% of the portfolio in the Franklin Bitcoin ETF (EZBC).
However, buying an asset that’s run up 47% over the past month is generally a bad idea. Right now, Bitcoin is at the shoeshine-boy-is-buying point of the mania. Its volatility over the years suggests it’s due for a price correction. And the incoming Trump administration’s acceptance (and approval) of Bitcoin, and its path to the financial mainstream, may still face some obstacles.
But short-term noise aside, the future is clear: And it’s Bitcoin.
Porter & Co.
Stevenson, MD
Get Porter in your inbox… Every Monday, Wednesday, and Friday, Porter Stansberry will deliver his Porter & Co. Daily Journal directly to your inbox. He puts his 25+ years of investment knowledge into a punchy, fresh, and insightful issue… that is free to get, no strings attached. Everything is uncensored, and nothing is off limits. To get the Daily Journal, free, click here.