What can we learn from Nexon's decision to buy $100 million worth of Bitcoins?
Yesterday Nexon announced, on their Medium channel, they have purchased $100 million worth of bitcoins. At the time, the order represented around 1,717 bitcoins in total with an average price of $58,226.
This seamed just another news about a company getting some exposure in the cryptocurrency market. However, the announcement goes further and explains why Nexon did such large purchase. I will quote and then discuss the four takeaways (the best part of the announcement) below:
In this environment we see BTC as a form of cash likely to retain its value, even if it is not yet widely-recognized as such. While we won’t go into every feature of BTC (others do that better) some attributes stand out:
- Buying power: Only 21 million BTC will ever exist, and 85% of that is already “mined,” placing significant scarcity value on the current and future supply of BTC. To put it more bluntly, it is the hardest money we know of.
- Network effects: The value of a currency rises as more people use it. We don’t think we are the only ones looking closely at the features of bitcoin relative to other forms of cash. As others do, the value to everyone goes up.
- Liquidity and Convenience: We can hold it, move it, and trade it easily, with little cost or overhead.
- Innovation: The technology underlying BTC and other crypto currencies is beginning to creep into many areas of day-to-day use, such as payments, digital collectibles and other areas that are increasingly relevant for companies like ours.
We understand that there are risks, and we continue to study them. For now, our commitment to BTC is $100 million, which is less than 2% of our total cash-and-equivalents on hand. Although accounting rules call for a different treatment, we consider BTC as a form of cash along side US dollars, Japanese yen and Korean won.
As you can see, these are four arguments that consolidates the idea of how important the cryptocurrency is and will be in the near future. Let's go over them:
- Buying power: since BTC has a limit of the amount that will be created (exactly 21 million by the year 2140), we have scarcity, we have value that will not be diluted with more BTC being mined. On the other hand, a Fiat loses value when the government starts to print more and more in order to pay its debts. This is a big issue due to the current pandemic. Many governments are printing more money in order to support their populations. However, the more they print, the more their currencies get diluted, loses value and creates inflation. Since BTC has a fixed number of coins that will ever be mined, we can expect a stable buying power.
- Network effects: If everybody wants to use dollars, the price of the dollar will rise (supply and demand). With the increase of people, banks, etc., using BTC or any other cryptocurrency, the price of such crypto asset will increase. People will pay more to have it, the demand will grow but the supply will not; as we explained above.
- Liquidity and Convenience: Different from Fiat, cryptocurrency can be transferred almost instantly from one side of the planet to another without the need of an intermediary. Without the latter, we can cut fees making the transfer faster and less expensive. Of course the transfer of cryptocurrency has a cost (there is no free lunch) but it is lower than a normal money wire.
- Innovation: the blockchain technology is revolutionary. The number of new technologies that can be created on top of it is immense. Every day we see new usages for the blockchain. Hence, with the creation and migration of current technologies to the blockchain, the more cryptocurrencies will be necessary and used.
We are witnessing a change in mindset from big companies. We can expect more news such as Nexon's in the near future. This will certainly help detractors of the blockchain technology and the cryptocurrency market to potentially change their mind... if not... then too bad for them. :)
Thank you for reading and I hope you liked the article. :)
