M. Saylor — “Bitcoin Doesn't Have to Replace Fiat Currency”

According to Michael Saylor, Bitcoin does not need to replace fiat currency to reach several hundred trillion dollars in value.

Bitcoin and Fiat — Peaceful Coexistence

As usual, Mr. Saylor reiterated why Bitcoin is the greatest asset of all time. However, the most interesting part was his critique of Austrian economics followers who think that Bitcoin must replace fiat currency to succeed. He also explained why chaos benefits BTC.

We strongly recommend anglophiles to watch this interview from start to finish:

A discussion of #Bitcoin Hodling, $MSTR, investment strategy, currency vs. property, $BTC growth dynamics, global capital flows, & why Chaos benefits Bitcoin, with @MMCrypto. pic.twitter.com/CYr2Jo2L7y

— Michael Saylor⚡️ (@saylor) November 12, 2023

The aforementioned critique:

“People often equate Bitcoin with money because of the term ‘cryptocurrency.’ It is more constructive to use the metaphor ‘digital property’ to describe it, rather than ‘digital currency.’

Using fiat currency as a means of exchange has the advantage of not having to pay capital gains tax. Fiat currency is an untaxed medium of exchange. It’s possible to trade 100 times a day without worry because the accounting systems of China, Japan, Russia, Europe are backed by the yuan, yen, ruble, and euro. These trades do not trigger a taxable event, so companies will always price their products in fiat currency. As long as there are governments, exchanges will not take place in Bitcoin, unless you’re in a country where the currency has collapsed. This is the case in some African countries or war zones. But where governments work, fiat currency works.

Believing that Bitcoin will replace fiat currency is a distraction that causes mental dead ends for many people. Some might think: ‘Hmm, Bitcoin is supposed to replace fiat currency. It must do so to maintain its value. But at the same time, it is too volatile, it is not part of the accounting system, it is taxable with each transaction, so it will not replace fiat currency and therefore I will not buy it.’

Thinking that Bitcoin must replace fiat currency is like throwing oneself into a bottomless well with a straitjacket. The correct way to approach Bitcoin is to assume that it will replace all assets that are derivatives of fiat currency. That is, all assets with inferior properties. I will always use the dollar to pay my employees, but I will not place my treasury in U.S. sovereign debt or the debt of other multinationals. I replace all that with Bitcoin.

Do I want to lock up my money for 30 years to receive a yield of 3% or 4% per year? Or do I want to hold Bitcoin, which appreciates by 40% per year? When you think about it, Bitcoin does not replace the yuan, euro, or dollar. It replaces debt securities that pay returns in euros, yuan, or dollars.

Bitcoin also replaces stocks. The reason is that inflation is at 7% per year [average annual growth rate of the amount of dollars in circulation]. Consequently, companies need to pay a dividend of more than 7% to beat inflation. This is not the case. If we do the math, the value of the cash generated by multinational companies is exponentially decreasing.

If a company is a monopoly that manages to generate a 20% return per year and inflation is at 7% per year, then maybe I’ll buy its shares. But how many companies are capable of that? None, except the top 7 (Microsoft, Apple, Google, Amazon, NVIDIA, etc). It’s easier for a business to change countries than to modify its systems to do without Microsoft products. These kinds of companies are more powerful than most governments and can boast high margins. The other 7,000 listed companies do not generate yield due to inflation.

Regarding real estate. Rents are capped by the inflation rate. If the official inflation is 2% but the real inflation is 7%, you are losing out. It’s also very difficult to increase the rent of your tenants every year.

All this to say that monetary inflation benefits those who own scarce assets like Bitcoin while deteriorating the returns of other assets. Therefore, Bitcoin does not need to replace fiat currency to succeed. […] The global wealth amounts to about 850 trillion dollars in real estate, debt securities, stocks, art, and collectibles. Bitcoin is a better asset than all of them.

What will happen is that people will stop buying real estate for 25 or 30 times the annual rent value. They will sell everything until the price returns to 10 times the annual rent. The same goes for company shares worth 25 times their annual earnings. They will buy Bitcoin until the ratio falls back to 12.”

In response to the question of how much Bitcoin will appreciate, Michael Saylor did not disappoint:

“In the long run, the money supply will grow by 7% per year. The S&P index will likely follow the evolution of the money supply. Over the next 100 years, Bitcoin will continue to appreciate more than 7% per year because it is not as risky as a company. But in the short term, we are in a period of high growth of 20 to 40% per year with volatility until we move to a more mature state. Then you just have to look at the total global wealth. If it is 900 trillion dollars, there is no reason why Bitcoin couldn’t represent 10 to 20% of it. That brings us to a figure of 10 million dollars per Bitcoin.”

This servant fully shares this analysis. Bitcoin does not need to replace fiat currency to be worth millions. It’s not even certain that it would be desirable. The tool of debt is necessary for building a complex society (highways, dams, nuclear power plants, nuclear fusion, deepwater oil drilling, aerospace, etc…).