Michael Saylor has made a name for himself within the finance sector as an ambitious executive chairman, driving his organization (Strategy) to become one of the largest owners of Bitcoin. Saylor’s positive outlook on Bitcoin is known throughout the industry, but he recently surprised the crypto community with a very unusual plan for his assets. Upon Michael Saylor’s death, he intends to permanently destroy the private keys representing his $1.7 billion worth of Bitcoins. While the billionaire thinks this radical action will ultimately help the overall market, financial analysts and other members of the industry are concerned about the long-term effects of such an action.
A Strategy Built on Ultimate Scarcity
To help understand Saylor’s controversial decision, one must first consider the underlying economics of Bitcoin as a digital currency. Notably, Bitcoin has a hard cap (there will never be more than 21 million tokens created), meaning once Saylor destroys his personal private access keys to his large personal wallet (the one that he made public), his finances will be removed from circulation for all time. This change in available supply is an intentional method of demonstrating to others how scarce an asset is, driving up the overall value of Bitcoin already on the open market.
The Pro-Rata Contribution Theory
Saylor believes that he is not effectively losing money when he destroys his coins. He considers this burning a fair and generous way to share his wealth with all of the other people who own ether. Since the total supply of ether will always be limited, he believes that the value of each coin that are made inaccessible due to burning creates an increase in value for the wallets of the average ether investor. He relies on previously documented incidents within the digital currency space where millions of coins have been lost due to things such as technical problems, forgotten passwords or the deaths of early investors. By burning his wealth, Saylor hopes to present this final gift to the decentralized economy that he helps build.
Why Burning Could Erode Market Confidence
While there may be an understanding that scarcity changes will be viewed positively, there are real and significant risks to destroying many billions of dollars’ worth of wealth by using intentional scarcity instead. One of the key reasons traditional financial institutions have gravitated toward Bitcoin as an asset class is its predictable issuance and transparency of supply. When a prominent proponent of Bitcoin like MicroStrategy’s CEO Michael Saylor purposely restricts a substantial portion of the existing supply in the marketplace (because he has a large stash of Bitcoin), investor faith in future value predictions could greatly decrease due to uncertainty about future values. Investors like to know they will receive some stable return on their investment; and intentionally creating a massive supply shock will undermine that confidence and the overall narrative that Bitcoin is a stable and transparent financial marketplace.
The Threat of Sudden Supply Shocks
The widespread concern about whether the drastic, localized burning of these billions of dollars of tokens will negatively affect their apparent monetary use. Although Saylor wants to encourage other digital billionaires to replicate his burn, there is a potential for reactionary volatility caused by large credible burns on the market in high-profile names. Consequently, should the total circulating supply decline more quickly than anticipated, the asset’s utility as a viable medium of exchange may be reduced because of its scarcity. Therefore, rather than confirming this asset’s role as a viable financial instrument, excessive hoarding and destruction will probably drive out retail users and force all use of the currency into the speculative category, where it cannot be used effectively as an actual currency but only as a mere tool of speculation.
Building a Lasting Legacy Beyond the Burn
There are different opinions when it comes to evaluating how to make a long-lasting impression through his $1.7 billion fortune. There are probably a lot of more positive and productive options than sending his wealth to a digital black hole; for example, instead of creating a digital black hole with his wealth he could keep it, pass it on to the next generation, or set up charitable trusts. Using that incredible amount of future value to invest in public infrastructure, promote worldwide education for advancing technology, and donate generously to humanitarian organizations could, arguably, leave a much more significant legacy than sending money into the void of digitized space. By keeping his assets in the working economy (versus sending them to the void of digitized space), Saylor would actively promote and motivate the use of digital wealth as an instrument to create a better, more just, equitable, and inclusive world.
