How Michael Saylor uses the time value of money to combat fiat devaluation

What is the time value of money?

As someone who has been closely following the crypto market and its developments, I must admit that Michael Saylor’s Bitcoin investment strategy has caught my attention. Coming from a background where I have seen the eroding value of fiat currency due to inflation, I can appreciate the wisdom behind his approach.

The idea of Time Value of Money (TVM) is that money currently available has more worth than the same amount of money in the future, considering its potential to grow or earn interest over time.

Typically, the purchasing power of traditional currencies decreases due to inflation, yet their worth increases when used for investment. Waiting too long to invest could mean missing out on potential returns, which can be quantified by considering the sum of money, the anticipated future value, the time period involved, and the potential earnings.

There are four key principles of TVM:

• Present value (PV): The current worth of a future sum of money or cash flow. It enables you to compare the value of money received in the future to what you have today, taking into account potential interest and inflation effects.
• Future value (FV): This is the value of current assets at a future date with an assumed growth rate. This is useful to estimate potential profits over a given time frame. 
• Discount rate: The discount rate is the number used to discount future cash flows to the present value. You can use it to estimate how much future cash flow is worth today.
• Opportunity cost: This reveals the potential benefits and profits you have missed out on. It shows the cost of not choosing a particular option based on the future value of one investment decision compared to another alternative.

Did you realize that in the 1600s, Spanish theologian Martin de Azpilcueta developed the idea known as the time value of money? Essentially, he proposed that a dollar now is worth more than a dollar later.

How does Michael Saylor use the time value of money?

Saylor contends that by incorporating the concept of time value of money and Bitcoin (BTC) in investments can result in substantial gains. Moreover, he intends to exploit Bitcoin’s deflationary attributes while devising methods to combat inflation.

Saylor sees Bitcoin as a hedge against inflation. Saylor’s strategy against fiat devaluation gives him unshakable confidence that Bitcoin will appreciate aggressively over time compared to fiat currency, which is constantly devalued by inflation. MicroStrategy conducts detailed economic calculations to compare the future value of Bitcoin against holding cash, factoring in inflation and fiat currency devaluation strategies.

He uses MicroStrategy’s company assets and cash flow to buy Bitcoin. Its crypto treasury holds over 240,000 BTC, which is over $14 billion in Bitcoin reserves as of October 2024. 

According to Saylor, the purpose of using money and time is solely to invest in buying more Bitcoin. Essentially, spend all your available funds on purchasing more Bitcoin, and then dedicate all your spare time to determining what assets you could sell in order to buy even more Bitcoin.

Saylor, as CEO of MicroStrategy, strengthens his time value of money and crypto investment approach by obtaining a substantial amount of cryptocurrency through debt financing. His proficiency in estimating the future worth and cash flow of these assets gives him confidence to accept debt at a low interest rate. Essentially, he’s wagering that Bitcoin’s future growth will significantly surpass the expenses associated with borrowing. Moreover, his debt might be eroded by inflation, boosting potential profits even more.

As a crypto investor, here’s an interesting fact I stumbled upon: MicroStrategy isn’t just another name in the cryptosphere, it’s actually a business intelligence software firm established back in 1989. This company offers analytics tools to businesses, empowering them with data-driven insights that foster innovative decision-making.

Key features of Michael Saylor’s strategy

MicroStrategy’s financial commitments are influenced by the CEO’s conviction that Bitcoin serves as a shield against inflation and a promising asset with high growth potential. Consequently, this viewpoint has resulted in growing levels of borrowed capital and significant profits.

Here’s how Saylor combats fiat devaluation:

• Inflation protection through Bitcoin: In May 2022, Saylor posted on X, saying, “Bitcoin is the best hedge against inflation.” At that point, MicroStrategy had been investing in Bitcoin for nearly two years. It had appreciated 149%, outperforming every other asset class, including gold and the S&P 500, plus smashing the 11% inflation rate.
• High growth potential: The investment world is continually stunned by Saylor’s growth predictions for Bitcoin. During an interview in October 2024, he predicted it would grow by 29% per year for the next two decades, leading to a price of $13 million per coin.
• Leverage: MicroStrategy is not shy when it comes to using leverage. It has a total long-term debt of roughly $3.8 billion in 2024. This is all debt accrued since 2020 when the company started buying Bitcoin. The leveraged position puts high volatility on its share price, but as Bitcoin grows, it amplifies across the share price. This gives MicroStrategy shareholders indirect exposure to Bitcoin and amplified returns.
• Global acceptance: When asked about his position on Bitcoin being digital gold, he explained that currently, Bitcoin is about 0.1% of global wealth, but with wider acceptance of it, digital gold could see this figure rise to 7%. That would put Bitcoin’s market cap at around $35 trillion.

Example of the time value of money using Saylor’s strategy to beat inflation

As a crypto investor looking back on 2020, I made a strategic move by pouring $250 million into Bitcoin. Fast-forward to 2024, the value of that investment skyrocketed to an astonishing $1.45 billion, significantly outpacing inflation and serving as a powerful testament to Bitcoin’s potential as a wealth preservation tool.

Let’s delve into the idea behind Time Value of Money (TVM) and how Saylor applies this concept by illustrating a straightforward example. For the sake of simplicity, we’ll ignore factors like transaction fees, taxes, and other external influences in our calculations.

Investing $250 million in Bitcoin back in 2020, as done by Saylor, resulted in a massive growth to approximately $1.45 billion by 2024. On the other hand, if he had kept that same $250 million in cash, its value would have diminished due to inflation, dropping to around $203.16 million over the same period. This striking contrast demonstrates how Saylor’s Bitcoin strategy was highly effective in safeguarding and amplifying wealth compared to holding traditional currency, which gradually loses value due to inflation.

Other applications of Saylor’s Bitcoin investment plan

Many businesses are incorporating Bitcoin into their financial management plans for their corporations, with individual investors finding a model to follow in Michael Saylor’s “fiat currency depreciation approach.

As an analyst, I find myself observing that Marathon Digital Holdings is a leading public company, boasting a significant crypto treasury of approximately 26,000 Bitcoins, making it the second-largest of its kind. Meanwhile, Tesla, the renowned brand, has strategically hedged against inflation by holding around 11,500 Bitcoins in 2024. Elon Musk, Tesla’s visionary founder, has emerged as one of the most influential voices in the cryptocurrency world. In fact, he has delivered speeches advocating for companies to adopt Bitcoin.

Individual investors may find motivation in the approaches taken by Saylor and MicroStrategy, especially considering today’s high inflation rates. Inflation has been eroding purchasing power while wages have struggled to keep pace. Even though Saylor’s strategy carries some risk, it presents an intriguing opportunity for small-scale investors to invest in a highly liquid and potentially deflationary asset.

Saylor emphasizes the convenience of digital assets such as Bitcoin, as they contrast traditional investments which may be inflexible. These conventional investments might be difficult to convert or sell quickly. For instance, real estate investments often require months or years to offload. Furthermore, they are stationary and tied to specific locations, subjecting them to potential property tax increases and limiting their appeal to a smaller pool of buyers. However, with Bitcoin, you can transport your wealth globally and instantly convert or trade it with investors from any corner of the world.

Did you realize? Back in 2022, Elon Musk liquidated a significant portion of Tesla’s $1.5 billion Bitcoin holdings to report a quarterly profit for the company. As of 2024, the remaining Bitcoin has increased in value, now worth over $700 million.

Future outlook of Michael Saylor’s time value of money strategy

Amidst ongoing worldwide battles against inflation and the depreciation of currencies, Saylor persists in accumulating Bitcoin, as his cryptocurrency strategy based on the time value of money foresees substantial returns compared to any other investment.

The sustainability of Saylor’s bitcoin strategy, which relies on Bitcoin’s capacity to uphold its unique value and significantly increase in worth over time, hinges on this outcome. For MicroStrategy to keep its financial stability, it is crucial that they maintain adequate security for their long-term leveraged loans while managing cash flow efficiently to meet debt repayment obligations.

As a crypto investor, I’ve found myself drawn to Bitcoin due to its impressive growth potential. Similarly, MicroStrategy has demonstrated an impressive resilience in navigating market turbulence, which smaller investors might aspire to emulate. However, replicating their leveraged TVM strategy could prove unsustainable for many of us, especially during bear market periods when making repayments becomes challenging.

Should Bitcoin’s rapid growth persist, the opportunity cost embedded within conventional financial strategies based on time value of money could become a significant factor that many investors may find hard to disregard, following Michael Saylor’s investment approach.