MicroStrategy’s Bitcoin Dominance

While MicroStrategy’s strategy may initially seem profitable, it could ultimately lead to financial harm and market instability.

A notable constraint on the quantity of bitcoin that can be extracted is a coded limit of 21,000,000 coins. As of the publication date, mining has commenced for over 19.6 million of the total 21 million bitcoins, accounting for 93% of the bitcoins that have thus far been generated.

The quantity of lost bitcoins is indeterminable; estimates vary from 20% to nearly 40%. However, these misplaced coins are critical in ascertaining the extent and uniformity of proprietorship regarding the cryptocurrency.

Therefore, what is advantageous for MicroStrategy and Michael Saylor may be detrimental for a decentralized protocol.

MicroStrategy’s most recent 8K discloses that the organization possesses 214,246 cryptocurrencies. In consequence, a single corporation now possesses dominion over an estimated 1.3% to 1.8% of the total amount of bitcoin that is ever mobile.

Although it is not inconceivable that MicroStrategy could continue to acquire an excessive amount of bitcoin for decades, thereby undermining the decentralized nature of the protocol and gaining monopolistic control over it, it is considerably more probable that Saylor’s buying spree will ultimately harm MicroStrategy and possibly bitcoin.

This is because the process of cornering a market, although initially lucrative, must be reversed. Destruction ensues when this unwinding takes place.

In the past century, commodities markets have been captured by individuals on multiple occasions. Those individuals couldn’t control the markets and keep prices high; most perished in notoriety.

Implications of MicroStrategy’s Dominance

An illustrative instance is the Sumitomo Copper Affair, in which R. David Campbell and Yasuo Hamanaka devised a scheme to inflate copper prices by generating fictitious demand.

After regulators punished the two individuals for improper conduct, copper markets collapsed and remained low for nearly a decade. In contrast, the price of copper had remained elevated for years.

A second well-known example of market dominance occurred on “Silver Thursday.” The Hunt brothers achieved substantial control over approximately one-third of the freely traded silver markets in 1980.

However, their holdings were liquidated when the price fell below their established margin requirements. This ultimately led to the brothers’ financial ruin and a silver price that has yet to regain its former peak levels.

Saylor and MicroStrategy do not control a fraction of the market share (33%), which the Hunt brothers dominated. However, it is logical to assume that as leverage increases, the price must remain elevated.

Additionally, increasing your holdings of non-super-liquid assets will impede your ability to strategically position yourself and your organization to generate profits while remaining compliant with the law.