Hey guys! Do you know the time value of money? Let’s have a clear understanding of what is time value of money is.
TVM is the abbreviation for the Time value of money, which is a concept that money has greater value now than it will in the future based on earning potential.
You know that, fiat money is devalued by inflation, however, the value of money increases as invested. The four key principles of TVM are Present value (PV), Future value (FV), Discount rate, and Opportunity cost.
- Present Value (PV)
Present value is defined as the current value of a future sum of money or cash flow. You can determine the potential interest and inflation effects as it gives a provision to compare the value of money received in the future to what you have today.
- Future Value (FV)
Future value is defined as the value of current assets at a future date with a presumed growth rate. FV is used to estimate potential profits over a given time frame.
- Discount Rate
This is the number used to discount future cash flows to the present value.
- Opportunity Cost
Opportunity cost reveals the cost of not choosing a particular option depending on the FV of one investment decision compared to another alternative.
How Michael Saylor Uses the Time Value of Money?
Michael Saylor believes that combining the time value of money and Bitcoin would result in bigger profits. He also limited the Bitcoins supply to protect against inflation in investment strategies. He treated Bitcoin as a fence against inflation. He believes that fiat currency loses its value due to inflation whereas the Bitcoin value grows much faster than that.
Saylor leads a company named MicroStrategy, he compares the future value of Bitcoin to holding cash along with taking into consideration inflation and its influence on the value of money.
The company’s assets are used to buy Bitcoin. As per the records of October 2024, the company holds more than 240,000 Bitcoins, which worth is more than $14 billion.
Saylor’s ideology is to spend all money and time to purchase Bitcoin. He also debt money for a low interest rate to buy bitcoin with an anticipation that the value of money will be more than the interest. Inflation could reduce the real value of debts which will result in enhancing the potential profit.
Definitely, there are some principles behind the success of MicroStrategy. Nine key Bitcoin principles are listed below.
- Make sure all the assets are purchased and kept safely.
- Maximize long-term shareholder value via strategic investments and sustainable growth.
- Ensure fair, clear, and honest treatment for all investors
- Implement smart borrowing strategies to get the full potential from MicroStrategy.
- Persistently purchasing Bitcoin while earning additional returns on it.
- Flourishes with smart and quick subject to market dynamics.
- Establishing new layers of bonds that are secured by Bitcoin.
- Keep a robust and clear balance sheet.
- Encouraging companies around the world to adopt Bitcoin as a treasury reserve asset.
Why did MicroStrategy buy Bitcoin?
The thought of implementing the Bitcoin strategy was decided during the first three months of 2020. Saylor called the beginning stage of strategy ‘crazy years’. Those were the years, the whole world experienced the lockdowns, office closures, and market crashes. That has affected all sectors of the business. Interest rates reached zero and resulted in a phase of market confusion and volatility.
During the early days, their focus was mainly on the core business and ways to navigate the new economic landscape. Business concerns were associated with employee satisfaction and retention, and if the work is made remotely it will be easy for the competitors including Microsoft, Google, and Amazon.
They realized that, as per the Federal Reserve, the large cash savings would earn no returns for a long time. Shareholders felt upset about this and the cost of capital highlighted the inefficiency of holding cash.
Taking everything into account, MicroStrategy was compelled to make a decision, and that resulted in exploring Bitcoin as the best solution to these challenges.
Also Read: MicroStrategy Boosts Bitcoin Holdings
Conclusion
In conclusion, Michael Saylor’s strategy of using Bitcoin to combat fiat devaluation provides straightforward solutions for investing, especially in a world of high inflation. According to Saylor, Bitcoin was a deflationary asset, so his focus was on generating long-term returns. His strategy was far more flexible than the conventional one. It is associated with several risks however, he was very confident about the growth potential of Bitcoin. This strategy is best for individual investors as it could out perform inflation and manage leveraged debt during downturns. Sooner or later, if Bitcoin continues to follow the upward growth trend, Saylor’s approach will be highly influential for investors who have the potential to track the possible risks.