Microsoft's plans to invest in Bitcoin revealed

Author: Liam; Source: Carbon Chain Value

On October 27, according to documents submitted by the US SEC on Thursday, Microsoft, a software giant with a market value of over $3 trillion, will vote on the "Evaluation of Investing in Bitcoin" at the shareholders' meeting on December 9. The proposal was put forward by the conservative National Public Policy Research Center associated with the 2025 project. The center calls Bitcoin "an excellent inflation hedge tool, if not the best", which is an important reason for making the proposal to Microsoft.

Microsoft pointed out in the SEC document that in periods of persistent and often severe inflation, the company's financial condition depends not only on its own operating conditions, but also on the accumulation of its own business profits.

Companies that invest assets wisely can (and often do) increase shareholder value more than those that do not do so but have higher profits. Therefore, companies have a responsibility to maximize shareholder value by working hard to increase profits and protect those profits from depreciation.

According to the CPI data, the average inflation rate in the United States over the past four years was 5.03%, peaking at 9.1% in June 2022. But in reality, the real inflation rate is much higher than this, and some studies estimate that it is sometimes close to twice the CPI. Therefore, over the past four years, a company's assets need to appreciate at this rate to break even.

As of March 31, 2024, Microsoft's total assets were $484 billion, most of which were US government securities and corporate bonds, whose yields barely exceeded the inflation rate (if we assume that the CPI is accurate, which it is not, so the bond yields are actually lower than the actual inflation rate).

Therefore, in times of inflation, companies should (perhaps have a fiduciary responsibility) consider diversifying their balance sheets with assets that appreciate more than bonds, even if these assets are more volatile in the short term.

As of June 25, 2024, the price of Bitcoin has risen 99.7% from the previous year, with an average increase of about 94% higher than corporate bonds. Over the past five years, the price of Bitcoin has risen 414%, with an average increase of about 411% higher than corporate bonds.

Microstrategy is a technology company like Microsoft, but unlike Microsoft, MicroStrategy holds Bitcoin on its balance sheet. Although MicroStrategy's business volume is only a small fraction of Microsoft's, its stock price has outperformed Microsoft by 313% this year. And this is not an isolated case. Institutional and corporate adoption of Bitcoin is becoming more and more common. Microsoft's second-largest shareholder BlackRock offers a Bitcoin ETF to its clients.

Currently, Bitcoin is a more volatile asset than corporate bonds, so companies should not hold too much Bitcoin to avoid damaging shareholder value. However, since Bitcoin is an excellent (if not the best) inflation hedge and corporate bond yields are lower than actual inflation rates, companies should not ignore Bitcoin completely and damage shareholder value. At the very least, companies should evaluate the benefits of holding some Bitcoin (even if it is only 1%).

However, Microsoft's board of directors opposed the potential December vote, saying that it was "unwarranted" to ask shareholders to vote on the matter because the matter had already been investigated, and called it "unnecessary" because the company's management "has carefully considered" the controversial move. 

The company said of its opposition to the proposal: "Past evaluations have included Bitcoin and other cryptocurrencies as options for consideration, and Microsoft will continue to monitor trends and developments related to cryptocurrencies to inform future decisions."

As a peer, MicroStrategy began buying Bitcoin as early as 2020. The Tyson, Virginia-based company is currently the largest corporate holder of cryptocurrencies. The company holds 252,220 bitcoins, currently worth $17 billion, and its stock has risen sharply this year as the price of bitcoin has risen.

On Friday, MicroStrategy CEO Michael Saylor suggested that Microsoft CEO Satya Nadella contact him for advice on potential investments: "If you want to make the next trillion dollars for (Microsoft) shareholders, call me."

It is reported that shareholders such as Vanguard Group, BlackRock and State Street Bank will be eligible to vote on Microsoft's Bitcoin proposal in December.

According to foreign media reports, if Microsoft can follow in the footsteps of MicroStrategy, it will mark a historic milestone for Bitcoin: Microsoft is the world's third-largest company with a market value of $3.208 trillion.

Will this really happen? No one can say for sure at the moment. But Michael Saylor himself has already reached out to Microsoft Chairman and CEO Satya Nadella to discuss the possibility. If there’s one person who can speak Nadella’s language and get the job done, it’s Saylor. There are many reasons why Microsoft should invest in Bitcoin… like having $75 billion in cash on hand, which is melting like an ice cube.

That being said, Saylor not only understands the importance of holding actual BTC on the balance sheet, he also knows that other large companies interested in investing in Bitcoin may prefer a different investment approach (like buying shares of a spot Bitcoin ETF). So if Microsoft were to invest in Bitcoin, they would probably buy shares of BlackRock and other Bitcoin ETFs.

Regardless, one thing is for sure: Bitcoin is now too big to ignore, even for the world’s largest companies.