Flashback: Bitcoin at $93

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The other day I was browsing through the Daily Reckoning archives and stumbled across a March 2013 piece by our long-time contributor Jeffrey Tucker.

The article was titled “Bitcoin’s Moment”, and BTC was trading at around $93 at the time.

Here’s an excerpt:

“Many people fear that Bitcoin is overpriced right now. This view is held even by people in the Bitcoin community who worry that a move from $15 to $93 in three months is not good for long-term viability. A crash could bring down the currency unit in devastating ways, leading to another round of debunking and clucking from the advocates of government money.”

It’s fascinating to see this discussion in retrospect. And it’s true that many thought Bitcoin was overvalued at the time. It had just increased 6x in three months. Calls of “bubble” had already begun.

But Tucker was bullish.

“Maybe the price will keep climbing. Next month at this time, people might be kicking themselves for not getting in right now. My instincts right now tend in this direction. I’m seeing BTC at $250, then $500, and then $1,000 by year-end.”

Jeffrey’s prediction of $1,000 Bitcoin by the end of 2013 came true. In late November Bitcoin briefly surpassed the key psychological barrier of $1k.

Bitcoin has come a long way since then. Today the original cryptocurrency sports a $1.9 trillion market cap and trades at about $98,000 as I write this. It’s become a titan in the financial world.

Kudos to Jeffrey Tucker for having the foresight to see it coming, and sharing it with our readers.

But while Bitcoin itself continues to dominate headlines, one company’s bold strategy has captivated Wall Street and Main Street alike…

The Curious Case of Microstrategy

MicroStrategy Inc. (MSTR) has been grabbing a lot of headlines recently. The company has raised huge amounts of convertible debt to purchase Bitcoins.

So far they’ve bought an incredible 423,650 Bitcoins, for a total value of about $41 billion at $98,000/BTC. Their average purchase price is around $60,000.

The curious part is that Microstrategy stocks currently have a market cap of $91 billion, and only have about $41 billion worth of BTC.

The underlying company isn’t worth much, perhaps a few billion. It’s basically just a vehicle that raises debt to buy Bitcoin. So why are they trading at more than 2x the value of the Bitcoin the company holds?

Previously, I would have explained this by the fact that Bitcoin ETFs were unavailable, so people are just looking for a stock to play it. But that explanation no longer flies with the widespread availability of cheap ETFs.

Now I think the market has simply gotten ahead of itself with regards to MSTR. It’s overvalued compared to Bitcoin at this point, and I would avoid it. Those who want to buy Bitcoin in a stock account should just buy the Fidelity (FBTC) or iShares (IBIT) ETF.

If Bitcoin has a significant correction, MSTR will likely move sharply lower. And I don’t see it outperforming the underlying cryptocurrency going forward. Not worth the risk.

The Trump Factor

The importance of Trump winning for crypto cannot be overstated. Gary Gensler, the anti-crypto SEC head, has already announced he will resign on inauguration day.

Trump has signaled that he will create a US Bitcoin Reserve Fund, consisting of the 210,000 confiscated BTC owned by the federal government. Those are coins that would have otherwise been dumped on the market, so this alone will have a significant impact.

Trump also plans to end the crackdown on crypto companies, which has been a major problem for the last 4 years.

With US debt and deficits soaring higher, and another wave of inflation almost certain, the stage is set for a continuing bull market in crypto.

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