Buying bitcoin was once taboo. Critics called it a fraud and a scam. Warren Buffett even went so far as to call it "rat poison squared" back in 2018.
Yet people's views toward cryptocurrency are changing. Some of the best and most respected investors in the world are now buying large amounts of bitcoin. And some have signaled that they intend to buy even more in the coming year.
The inflation hedge
Famed macroeconomic investor Paul Tudor Jones purchased bitcoin in May as a means to protect his portfolio from the negative effects of inflation. Jones expects the massive stimulus measures enacted to mitigate the carnage wrought by COVID-19 to eventually cause a steep rise in the prices of goods and services. "We are witnessing the Great Monetary Inflation -- an unprecedented expansion of every form of money unlike anything the developed world has ever seen," Jones said.
To hedge his portfolio against the negative impact of this central-bank-induced inflation, Jones evaluated multiple types of potential investments, including gold, commodities, and stocks. Yet Jones believes bitcoin is the best option. He sees the cryptocurrency increasingly becoming a store of value, due in part to its advantages over gold. Bitcoin is easier to store and transfer than the precious metal. It's also more divisible.
Moreover, Jones argues that the trend away from cash and toward digital transactions favors bitcoin. "The most compelling argument for owning Bitcoin is the coming digitization of currency everywhere, accelerated by COVID-19," Jones said.
Betting against the dollar
In November, billionaire hedge fund manager Stanley Druckenmiller announced that he, too, owned bitcoin. Like Jones, Druckenmiller views bitcoin as a means to profit as the dollar declines in value.
Although he's bullish on gold and owns much more of the precious metal than he does cryptocurrency, Druckenmiller expects bitcoin to generate superior returns. "Frankly, if the gold bet works, the bitcoin bet will probably work better because it's thinner, more illiquid, and has a lot more beta to it," he said. Beta is essentially a measure of volatility.
Additionally, like Jones, Druckenmiller sees bitcoin being used as a store of value, particularly by millennial investors.
The treasury reserve asset
Despite their bullishness, Jones' and Druckenmiller's bitcoin bets pale in comparison to that of MicroStrategy (NASDAQ:MSTR). The business intelligence company has invested more than $1.1 billion in bitcoin. It owns over 70,000 coins, a stake currently valued at more than $2.3 billion. MicroStrategy had announced in August that it was adopting bitcoin as its "primary treasury reserve asset."
"Our investment in Bitcoin is part of our new capital allocation strategy, which seeks to maximize long-term value for our shareholders," CEO Michael Saylor said in a press release. "This investment reflects our belief that bitcoin, as the world's most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash."
Like Jones and Druckenmiller, MicroStrategy's bullishness is due in part to the current macroeconomic environment, in which the coronavirus-driven economic downturn and corresponding central bank money-printing threaten to devalue the dollar and other fiat currencies. Yet Saylor sees several advantages unique to bitcoin that could help to drive the cryptocurrency's price higher.
"We find the global acceptance, brand recognition, ecosystem vitality, network dominance, architectural resilience, technical utility, and community ethos of bitcoin to be persuasive evidence of its superiority as an asset class for those seeking a long-term store of value," Saylor said. "Bitcoin is digital gold -- harder, stronger, faster, and smarter than any money that has preceded it."
An emerging trend
MicroStrategy's aggressive move into bitcoin has ignited a trend among public companies. Digital payments and financial services leader Square (NYSE:SQ) invested $50 million in bitcoin in October. "We believe that bitcoin has the potential to be a more ubiquitous currency in the future," Square CFO Amrita Ahuja said at the time. "As it grows in adoption, we intend to learn and participate in a disciplined way."
In December, insurance giant MassMutual joined the movement when it invested $100 million in bitcoin. Although the purchase represented a relatively small portion of its massive $235 billion portfolio, the insurer signaled that more cryptocurrency purchases could lie ahead. "We see this initial investment as a first step, and like any investment, may explore future opportunities," MassMutual spokeswoman Chelsea Haraty told Bloomberg.
More companies are likely to follow MicroStrategy's lead in the weeks and months ahead. Perhaps Tesla (NASDAQ:TSLA) will be one of them. Saylor and Tesla CEO Elon Musk recently discussed how the electric vehicle maker could conduct "large transactions" in bitcoin in a series of tweets. Musk has spoken positively about bitcoin in the past, and it's possible that he will decide to convert some of Tesla's $14 billion in cash reserves into the cryptocurrency.
Regardless, a precedent has been set. More businesses and investors are likely to buy bitcoin in the coming year, which could help to drive the cryptocurrency's price sharply higher.