Cryptocurrency has become one of the most prominent uses of blockchain’s distributed ledger technology, and last August, business intelligence software producer MicroStrategy began its push into crypto by acquiring $250 million in bitcoin for its corporate treasury.
We had traditionally invested in Treasury bills, but leaving money purely in a fiat currency is a worry because it can be devalued at the click of a button.
The traditional thought was that excess cash should be returned to shareholders, but there’s nothing wrong with a corporation putting its income statement and balance sheet to work to increase shareholder value.
As we looked at the options for diversifying our $550 million in excess cash—from corporate bonds to equities and commodities like silver and gold—time and again we saw bitcoin as the best solution, as long as we could stomach short-term volatility in return for potential long-term asymmetric gains.
Given our public company structure and a business that has been producing lots of cash, we were able to do something that was unique and that most of our shareholders couldn’t do themselves: use excess cash to purchase cryptocurrency.
As far as other cryptocurrencies go, bitcoin is the dominant one in terms of global acceptance and recognition; after more than a decade, it has proven to be the market leader and the one with the most institutional adoptions at this point in time.
And we brought in attorneys, bankers, and other advisors for their views and to discuss the pros and cons about institutional acquisitions of crypto, which is distinct from retail investing.
In our second-quarter earnings report last year, we said that we have more than $500 million in excess cash, and that we intend to return up to $250 million to our shareholders and seek to invest up to another $250 million in one or more alternative assets, which could include digital assets such as bitcoin.
In our most recent 10-K, we clarified that we have two corporate strategies in the operation of our business: to grow our enterprise analytics software business, and to acquire and hold bitcoin.
The alternative to holding your own bitcoin is to invest in a fund, and in that case, fund accounting allows you to mark to market.
But even at a very conservative estimate—let’s say bitcoin is going to go up 20% a year—the hurdle rate for a return on an investment back into our business would still be high.
To do anything with our custody accounts, you need to go through a multi-approval process similar to the controls on bank accounts.