You could easily lose up to 90% of your fiat savings in 100 years from inflation alone, but that would never happen if you save at Bitcoin.
As of this writing, about 3.6% of Bitcoin Storm is locked up in long-term holdings of institutional investors. According to the data, 13 entities accumulated about 600,000 BTCs, approximately 2.85% of all Bitcoins and worth about $6.9 billion.
The list includes MicroStrategy at the top, with about 38,250 BTCs (about USD 450 million). The second place on the list is Galaxy Digital Holdings with 16,651 BTC (about USD 198 million). The third, with 4,709 BTC, is payment company Square Inc. founded by Twitter CEO Jack Dorsey. Separately, some companies help their clients invest in BTC. One such company is Grayscale Investments through its GBTC trust, which has about 450,000 BTCs.
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That said, the amount of Bitcoin that publicly traded companies have in reserve is a small fraction of corporate treasuries worldwide. In fact, the actual amount of cash held in reserves is trillions of US dollars. But consider this: nine companies in the S&P 500 have close to $600 billion in cash and short-term investments, and if just 5% (or $30 billion) of that amount is converted into Bitcoin, the price could easily increase fivefold.
Of course, there’s the question of where to place Bitcoin in the companies‘ investment portfolios. The most likely category is „alternative investment“. The need to strike a balance between traditional and alternative investments could reduce the market’s appetite for cryptomoney.
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However, the potential demand remains enormous. As mentioned in a recent Fidelity report, the alternative investment market grew to $13.4 billion by the end of 2018, and very little of it was in Bitcoin. It may be necessary to convert as little as 5% of that to see the price of Bitcoin reach the moon.
Some investment companies have chosen to create completely independent companies to store their Bitcoin and other crypto funds. For example, Stone Ridge launched the New York Digital Investment Group, which today has more than $1 billion in crypto currencies.
What is driving this movement?
To better understand this phenomenon, I recently had an enlightening talk with Michael Saylor, the founder of MicroStrategy. In particular, I found his selection of 100 years as the basis for measuring the success or failure of a reserve asset very interesting.
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Of course, most companies are founded with the expectation that they will live a long time, preferably centuries. Even for individuals, it still makes sense to look at how investments can change over a hundred years, as a person can accumulate wealth for heirs or even near-heart causes such as climate change. As Michael Saylor said:
„A great way to evaluate any investment is to take $100 million and go a hundred years and ask yourself what happens. If I had $100 million in any of the world’s largest cities in 1900, and I went forward 100 years, and put the money in the best bank in the city, I have two kinds of risks; counterparty risk and inflation risk. As far as the counterparty risk is concerned, all the big banks in all the big cities of the world went bankrupt in 100 years. And that’s a 90 percent chance that you’ll lose everything.
Of course, the most obvious weakness to detect when considering the performance of any reserve asset in 100 years is inflation. Of all asset types, the trust currency experiences the highest inflation over time. For example, what you could buy with USD 5 in the 1920s is much more than you can buy in 2020. According to a website that collects and processes government data for the benefit of the public, the US dollar loses approximately 2% of its purchasing power each year.
What about other assets?
While real estate may seem like a great asset to keep as a long-term reserve, it is susceptible to loss of value from things like taxes. More importantly, however, real estate faces risks that come with changes in regulation or public governance. In a 100-year time frame, a government that respects the public interest is likely to be able to afford to pay for it.