In today’s Money Morning…one small step for Square, one giant leap for bitcoin…Square is not alone in coming to this conclusion…the snowball has begun…and more…
One small action, at the right time, in the right place, can have a very big impact.
Even sitting in the ‘wrong’ seat of a bus!
Consider the famous story of Rosa Parks…
In 1955, a 42-year-old African-American woman refused to give up her seat on the bus for a white man in Montgomery, Alabama.
Due to the racial laws at the time in the US, she was arrested. There was an uproar around the country.
And the rest is history…
This moment — this simple act — is considered by many as the beginning of the modern US civil rights movement.
Sometimes it’s not even an action that sparks great change.
History tells us just one small sentence can change the course of the world!
Consider the extraordinary sequence of events that took place in Berlin on 9 November 1989…
Amazingly, it was a bureaucratic bungle that led to the fall of the Berlin Wall and the re-unification of Germany.
As reported by the BBC:
‘East German leaders had tried to calm mounting protests by loosening the borders, making travel easier for East Germans. They had not intended to open the border up completely.
‘The changes were meant to be fairly minor — but the way they were delivered had major consequences.
‘Notes about the new rules were handed to a spokesman, Günter Schabowski — who had no time to read them before his regular press conference. When he read the note aloud for the first time, reporters were stunned.
‘“Private travel outside the country can now be applied for without prerequisites,” he said. Surprised journalists clamoured for more details.
‘Shuffling through his notes, Mr Schabowski said that as far as he was aware, it was effective immediately.
‘In fact, it had been planned to start the next day, with details on applying for a visa.
‘But the news was all over television — and East Germans flocked to the border in huge numbers.’
What would have happened if the hapless Schabowski had more time to prepare his notes, I wonder?
But he didn’t.
And his off-the-cuff response turned the tide of history.
This phenomenon — how a small act can have big consequences — is often referred to as the butterfly effect.
It’s named after the idea that a butterfly flapping its wings can set off a chain of events, leading to a hurricane somewhere else.
True or not, it’s a nice way of expressing the interconnectedness of the universe and the fact that small acts can indeed cause big changes.
Now, here’s the thing…
I think we got such a moment in financial markets late last week.
One small step for Square, one giant leap for bitcoin
The announcement came through around midnight on Thursday. I was scrolling through my phone in bed when I saw this:
‘Jack Dorsey’s Square Purchases $50 Million Worth of Bitcoin’, read the headline in Forbes.
The company’s CFO explained:
‘We believe that bitcoin has the potential to be a more ubiquitous currency in the future. As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.’
Now $50 million worth of Bitcoin represents just 1% of Square’s total Treasury holdings.
They’re clearly playing it cautiously here.
But if you think about how far bitcoin has come in the last decade, and realise we’re at the point where rational corporate actors think it prudent to have some exposure to a cryptocurrency, you start to realise the magnitude of the moment.
Square is not alone in coming to this conclusion.
A less well-known company called MicroStrategy announced last month that they’d put $425 million into Bitcoin [BTC] as part of a long-term capital management plan. That’s a big move for a company with a market cap of just $1.5 billion.
But a company as large and well known as Square doing this is arguably the bigger deal.
Now, I’m not going to debate the merits — or not — of bitcoin today.
My central point is that these small acts could have very big consequences.
The snowball has begun
There’s no doubt in my mind that corporate CFOs up and down the land will now have to at least consider the possibility of doing this.
There’s $4 trillion sitting in corporate bank accounts in the US alone. It’s earning close to zero interest and losing purchasing power due to low interest rates and inflation every year.
If just 1% of this cash found its way into bitcoin, that’s $40 billion worth of demand from US businesses alone.
Not to mention demand from individuals, the rich listers, fund managers, retirement accounts, and even — perhaps one day — government central banks.
It’s easy to forget in a relatively stable country like ours, but for many parts of the world currency risk is a big part of everyday life.
In Latin America, for example, locals are turning to bitcoin as their own currencies plunge.
Sebastian Villanueva, who manages a crypto exchange in Chile, said:
‘“Venezuela and Argentina especially are printing money like crazy, so their fiat currencies are losing value. That drives a lot of cryptocurrency adoption,” Villanueva continued. “Some countries, like Argentina, limit the amount of U.S. dollars citizens can buy per month, which further limits their options for secure savings and increases the need for cryptocurrency.”’
The total market cap of bitcoin today is just US$200 billion. A drop in the ocean of money and financial products.
Gold, for example, is estimated to have a $7 trillion market cap.
But it was bitcoin — not gold — that Square opted for as a hedge against currency risk.
Ask yourself why?
Could this be the start of something bigger playing out? Has the butterfly effect begun?
I certainly think it has…
Editor, Money Morning
Ryan is also editor of Exponential Stock Investor, a stock tipping newsletter that looks for the biggest investment opportunities on the market. For information on how to subscribe and see what Ryan’s telling his subscribers right now, click here.