Institutional FOMO Has Entered the Bitcoin Chat



Hey There Income Hunters,


Signs are pointing to a massive wave of new buyers of Bitcoin entering the market …


And the harbinger is most unlikely.


MicroStrategy (Ticker: MSTR) headed by entrepreneur Michael Saylor is blazing a trail for cashflow-rich companies to shift from repurchasing shares to buying Bitcoin.


Companies repurchase shares as a way to return cash to shareholders… they also make the company look more financially attractive by increasing earnings per share, since they reduce shares…


MSTR’s core business is business intelligence and they are a well-established entity.


However, their best days of growth are far behind them …


Their story has become, however, because Saylor realized the seemingly never-ending stimulus, coupled with zero interest rate policy, offered the textbook setting for a weaker dollar …


This epiphany convinced him to shift away from using cash on the balance sheet for share buybacks and to instead seek an alternative use in the form of an inflation hedge …


Enter Bitcoin — which provides an ideal digital currency alternative to dollars, plus a soaring market value that can boost MSTR’s valuations …


Check out this move out …


Saylor recently sold $650 million convertible notes at a .75% coupon and 37.5% premium (extremely low levels of issuance) … to buy 32,220 Bitcoin at an average price of $21,726.


Then Elon Musk entered the fray and invested $1.5 billion of TESLA’s cash in Bitcoin.


With that, the stage is set for institutional Bitcoin FOMO!


The Bitcoin rally has just started.


No MSTR-y


In total, MSTR holds over 70,700 Bitcoins on its balance sheet at an average purchase price of $16,100 …


Nice boost in valuations with Bitcoin nearly tripling in price from there …


And MSTR may be just getting started …


Saylor announced on Feb. 16 that the company was raising another $600 million in capital to purchase more Bitcoin, which is now trading above $50,000 …


Could this borrow-to-buy approach create institutional buying of Bitcoin at ever higher prices?


Could $500,000 or higher be achievable? 


Yes. Yes, it can.


CEO’s recognize the beauty of Bitcoin in its scarcity value — the total number of coins is limited to 21 million.


The market is searching for true value, which could still be much higher from here…


Companies that believe in the potential of a dollar meltdown will be interested in following MSTR and TESLA’s lead on this move into Bitcoin…  


I mean, MSTR had limited growth potential with a flatlined stock price for the past couple of years… 


And now …


 


Do you know what that chart shows?


MSTR has transformed itself into a leveraged bet on Bitcoin …


Based on their current position, Bitcoin adds $3.5 billion of value to the balance sheet … 


MSTR’s market cap has risen to $9.5 billion…


A bet on MSTR today, would mean you expect Bitcoin to rally over 150K, as that would justify the $9.5 billion valuation …


And that at price could be in the rear view mirror in no time.


The Fallout


The stock market could suffer from collateral damage if a large number of companies follow MSTR and TESLA down the same path …


One issue could be a further decline in buybacks …


Plus, removing that much liquidity from the economy could concern the Fed and Treasury.


A negative outcome could come in the form of taxes.


Taxing unrealized capital gains would be one possibility that has been under the radar…


A proposal championed by incoming Senate Finance Committee chair Ron Wyden (D-OR) could become a reality down the road.


Under Wyden’s proposal, taxpayers over a certain income level or with qualifying assets exceeding a threshold, would have to pay taxes on increases in the on-paper value of assets, even if the capital gain was unrealized …


I’ll be keeping an eye on that here in Power Income.


Bring It Home


Speculation Fever is rampant …


It is simply a reaction to extremely low interest rates along with stimulus checks …


Now, throw in fear of dollar devaluation that destroys all holders of dollars and Government bonds — and you get FOMO on a chance to convert into inflation hedged assets that are soaring in value, particularly Bitcoin …


Have a great week and as always …


Live and Trade with Passion My Friends,


Griff

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