Is Bill Ackman a Bitcoin Bull Now?

Bill Ackman, CEO of Pershing Square Management, has posted a potential investment thesis for bitcoin on X. This thesis may rest on a flawed assumption; however, the performance of Michael Saylor’s MicroStrategy shows there are other justifications for investing in bitcoin.

• Bill Ackman outlines his proposed investment thesis for bitcoin.
• Michael Saylor’s investment case, however, differs on one crucial detail.
• Spot bitcoin ETFs up nearly 50% since their January inception.

Bill Ackman, Founder and CEO of Pershing Square Capital Management, turned heads on X on 10 March when he posted some whimsical thoughts on bitcoin, an asset class he has previously steered clear of.

His post read:

^{A scenario:}

^{Bitcoin price rise leads to increased mining and greater energy use, driving up the cost of energy, causing inflation to rise and the dollar to decline, driving demand for bitcoin and increased mining, driving demand for energy, and the cycle continues.}

^{Bitcoin goes to infinity, energy prices skyrocket, and the economy collapses.} 

^{Maybe I should buy some bitcoin.}

Bitcoin advocates, including Michael Saylor, former CEO and Executive Chairman of MicroStrategy [MSTR], soon weighed in.

Saylor, whose MicroStrategy is famous for its policy of spending excess cash flows on bitcoin, replied saying that “most bitcoin miners” in fact push energy prices down, but that there were other good reasons to invest, and offered to discuss the topic with Ackman.

According to CoinDesk, Ackman has historically avoided cryptocurrencies, barring some small investments in crypto projects or crypto venture funds. However, in 2022, Ackman said that he had revised his earlier crypto scepticism and come to believe that “crypto can enable the formation of businesses and technologies that heretofore could not be created.”

Ackman later underscored the theoretical nature of his original post by adding that “the problem, of course, is that it also works in reverse”.

Data correct as of Monday, 25 March.

Michael Saylor: The Benefits of Bitcoin

Bitcoin has, over its recent history, acted as a hedge against US dollar inflation because its price has shown an inverse correlation to the currency.

Jeff Booth, Founding Partner of bitcoin-only venture fund Ego Death Capital and author of the book The Price of Tomorrow: Why Deflation is Key to an Abundant Future, believes that this is because it exists outside of the fiat currency-based financial system’s susceptibility to regulation, which in his view acts against the free market’s natural deflationary tendencies.

Additionally, because the number of bitcoins that will ever be produced is finite (unlike fiat currency), the cryptocurrency is resistant to the inflationary impact of central banks’ ability to print money.

However, Ackman’s proposed thesis rests on the idea that more bitcoin mining will cause energy inflation, which Saylor disagreed with.

In April 2023, Saylor referred to bitcoin mines as “data centres running on excess electricity that would otherwise be wasted”, implying that they reduce energy bills for other users. He has previously suggested that bitcoin mining is the “cleanest industrial use of electricity and is improving its energy efficiency at the fastest rate across any major industry”.

Saylor cited data from the Bitcoin Mining Council (BMC) in support of this view: the group estimated that, in Q2 2022, 59.5% of energy used by bitcoin miners came from renewable sources and energy efficiency had improved 46% year-over-year.

The BMC’s latest figures suggest this trend is ongoing; 63.1% of energy used in the first half of 2023 came from renewable sources, and energy efficiency improved by an estimated 24% year-over-year.

Can Ackman Find a Spot for Bitcoin?

Whether bitcoin mining could lead to energy inflation is unclear, but Ackman appears to be contemplating the investment case for the cryptocurrency.

That would be slightly out of keeping with his current approach. According to Stockcircle, Ackman’s portfolio is currently skewed towards traditional sectors, with 63.6% in consumer staples and 16.8% in consumer discretionary. Just 20.8% of the portfolio is weighted towards technology stocks.

However, given bitcoin’s recent price movements, Ackman could be forgiven for experiencing a bit of FOMO.

Bitcoin gained 60.7% against the US dollar in the year to 20 March and 144.6% over the preceding 12 months.

Should Ackman decide he wants exposure to bitcoin’s price movements without directly owning the cryptocurrency, he has the option of buying a spot bitcoin ETF. These products, such as the iShares Bitcoin Trust ETF [IBIT], were approved by the US Securities Exchange Commission (SEC) on 10 January, and directly track bitcoin spot prices.

At present, IBIT’s performance is lagging behind bitcoin’s; it has gained 34.4% since its inception, during which time bitcoin gained 46.5%.

During the same period, MicroStrategy gained 173.4%; it is widely considered a leveraged bitcoin play, and as such experiences more extreme price swings than bitcoin.