Bitcoin Layer “The 24 Risks of Equities with Michael Saylor: https://m.youtube.com/watch?v=8cX1aptP5Io
Time for a thread 🧵
Discussion
1. Credit Risk: This is the risk that a company may not be able to meet its financial obligations. Michael Saylor explains that this risk is inherent in the equity markets, where companies can default on their debt obligations, leading to significant losses for investors. He contrasts this with Bitcoin, which has no credit risk as it is not backed by any corporation or government.
2. Counterparty Risk: This risk refers to the possibility that one of the parties in a transaction may fail to fulfill their contractual obligations. Saylor explains that this risk is significant in the equity markets, where companies can default on their debt, leading to significant losses for investors. He notes that Bitcoin, being a decentralized and trustless system, eliminates counterparty risk.
3. Strategic Risk: Strategic risk is the risk of a company making a bad strategic decision, such as a dilutive acquisition. Saylor notes that many software companies fail because of dilutive acquisitions made by the board and the CEO. He contrasts this with Bitcoin, which has no CEO or board, and no acquisitions are made as the network is decentralized and trustless.
4. Financial Risk: This is the risk of a company experiencing financial difficulties, such as losing money in a bank or experiencing currency fluctuations. Saylor notes that companies have a lot of money moving around, and there is always a risk of losing it. He contrasts this with Bitcoin, which is not subject to such risks as it is not held in banks or subject to currency fluctuations.
5. Market Risk: Market risk refers to the possibility of a decline in the value of an investment due to factors such as market volatility or economic conditions. Saylor explains that this risk is inherent in the equity markets, where prices can fluctuate rapidly. He contrasts this with Bitcoin, which has seen significant price appreciation over the years, and has a limited supply which makes it resistant to inflation.
6. Liquidity Risk: This is the risk that an asset cannot be easily bought or sold, leading to significant losses for investors. Saylor notes that this risk is significant in the equity markets, where it can be challenging to find a buyer or seller for a particular stock. He contrasts this with Bitcoin, which has a high degree of liquidity and can be easily bought or sold on many exchanges.
7. Volatility Risk: This is the risk of an asset experiencing rapid price fluctuations, leading to significant losses for investors. Saylor notes that this risk is significant in the equity markets, where prices can fluctuate rapidly due to factors such as company earnings or economic conditions. He contrasts this with Bitcoin, which has seen significant price appreciation over the years, and has a limited supply which makes it resistant to inflation.
8. Inflation Risk: Inflation risk is the risk that the value of an asset will be eroded over time due to inflation. Saylor explains that this risk is significant in the equity markets, where investors may need to invest heavily to keep up with inflation. He contrasts this with Bitcoin, which has a limited supply and a predetermined issuance schedule that makes it resistant to inflation.
9. Interest Rate Risk: This is the risk that the value of an investment will be affected by changes in interest rates. Saylor explains that this risk is significant in the equity markets, where companies can be highly sensitive to changes in interest rates. He contrasts this with Bitcoin, which is not subject to interest rate risk as it is not backed by any corporation or government.
10. Currency Risk: Currency risk is the risk that the value of an investment will be affected by changes in currency exchange rates. Saylor notes that this risk is significant in the equity markets, where companies can be impacted by changes in currency exchange rates. He contrasts this with Bitcoin, which is not subject to currency risk as it is not tied to any fiat currency.
11. Default risk: This refers to the possibility that a company may default on its debts or go bankrupt, leading to a loss of investment. According to Saylor, holding cash or Bitcoin may be a better option than investing in bonds or other debt instruments to avoid this risk.
12. Interest rate risk: Changes in interest rates can impact the value of equities, particularly for companies with high debt levels. Saylor suggests that investing in Bitcoin or other hard assets may be a better option to hedge against interest rate risk.
13. Inflation risk: Inflation erodes the value of money and can reduce the purchasing power of equities over time. According to Saylor, Bitcoin's fixed supply and deflationary nature may be a better hedge against inflation than equities.
14. Regulatory risk: Regulatory changes or government interventions can impact the value of equities, particularly for companies in heavily regulated industries. Saylor notes that Bitcoin may be less vulnerable to regulatory risk since it is decentralized and operates outside of government control.
15. Tax risk: Taxes can impact the value of equities, particularly for companies with large overseas operations or exposure to different tax regimes. Saylor suggests that Bitcoin's borderless nature and lack of physical presence may make it more difficult for governments to tax or regulate.
16. Legal risk: Legal disputes or lawsuits can impact the value of equities, particularly for companies with significant liabilities or legal exposure. Saylor notes that Bitcoin may be less vulnerable to legal risk since it is a purely digital asset that operates outside of traditional legal frameworks.
17. Currency risk: Changes in exchange rates can impact the value of equities for companies with international operations or exposure. Saylor suggests that Bitcoin's global nature and lack of reliance on any particular currency may make it a better hedge against currency risk.
18. Cybersecurity risk: Cyber attacks can impact the value of equities, particularly for companies with significant digital infrastructure or exposure. Saylor notes that Bitcoin's blockchain technology and decentralized nature may make it more resilient to cyber threats than traditional equities.
19. Fraud risk: Fraudulent activities, such as accounting scandals or Ponzi schemes, can impact the value of equities. Saylor notes that Bitcoin's transparent and immutable blockchain technology may make it less susceptible to fraud and manipulation.
20. Environmental risk: Environmental concerns, such as climate change or resource depletion, can impact the value of equities, particularly for companies in industries with high carbon footprints or resource consumption. Saylor suggests that Bitcoin's digital nature may make it more environmentally friendly than traditional equities.
21. Geopolitical risk: Political tensions or conflicts can impact the value of equities, particularly for companies with significant international exposure or operations. Saylor notes that Bitcoin's decentralized nature and lack of reliance on any particular country or government may make it a better hedge against geopolitical risk.
22. Human error risk: Human errors or accidents, such as operational mistakes or system failures, can impact the value of equities. Saylor suggests that Bitcoin's decentralized and automated nature may make it less vulnerable to human error and operational risks.
23. Black swan risk: Unforeseeable events, such as pandemics, natural disasters, or terrorist attacks, can impact the value of equities. Saylor suggests that Bitcoin's digital and decentralized nature may make it more resilient to black swan events than traditional equities.
24. Unknown unknowns: Finally, Saylor notes that there may be risks associated with equities or other investments that are simply unknown or unknowable. He suggests that diversification, risk management, and a long-term perspective may be the best ways to mitigate these unknown risks.