Japanese listed company Metaplanet plans to purchase Bitcoin as a means of transformation, attempting to create an Asian version of MicroStrategy. In a joint article with Kaku and Silicon Valley Uncle KC, the reasons behind this decision and Metaplanet’s ultimate goal are explained.
Summary:
Metaplanet faced losses and had to give up its core business.
The metaverse couldn’t save it.
The yen experienced significant depreciation.
The Asian version of MicroStrategy (MSTR).
Why Bitcoin?
Metaplanet, a publicly traded company listed on the Tokyo Stock Exchange, has been severely impacted by the pandemic. Its hotel business has been devastated, leading the company to announce a change in its financial management strategy in April this year. Metaplanet has adopted Bitcoin as its strategic reserve asset.
Since April, Metaplanet has purchased 137 Bitcoins (approximately $10 million). This strategy seems similar to that of MicroStrategy, a US-listed company, which has acquired over 200,000 Bitcoins as company assets. However, Metaplanet’s adoption of Bitcoin differs from MSTR’s reasons.
In an era of high government debt and rapid currency depreciation, maintaining the long-term value of cash positions is a challenge for every company. For example, the US dollar has increased its supply at an average annual rate of about 7% over the past century. The depreciation speed of different currencies varies depending on their monetary policies and fiscal discipline. If a company’s growth cannot exceed the increase in currency supply, it essentially experiences negative growth from a capital perspective.
MicroStrategy became the first publicly traded company to adopt Bitcoin as a reserve asset in 2020. It initiated a series of financial leveraged operations to increase its Bitcoin reserves, aiming to solve this problem and enhance the company’s competitiveness. Since implementing the Bitcoin strategy, MicroStrategy’s stock performance has significantly outperformed major tech companies, the S&P 500 index, gold, and bonds.
The difference is that MSTR has a profitable core business, while Metaplanet does not. Its core business is merely a burden.
Metaplanet, formerly known as Red Planet Japan Inc., was established in 1999 and is headquartered in Tokyo, Japan. It was previously a publicly listed company operating in the travel and hotel industry, with stable revenue growth. However, starting in 2019, it suffered severely from the COVID-19 pandemic, and its hotel business was greatly affected. The stock price and revenue plummeted simultaneously, from a peak of 360 yen per share in 2019 to a low of 15 yen (a 99.73% decline).
Due to the impact of the pandemic, Red Planet Japan’s revenue rapidly declined from its peak of 2.5 billion yen in 2019 to 7.84 million yen. It subsequently began a transformation by disposing of loss-making hotel businesses and cutting off its overseas (Thailand) operations, resulting in a year-on-year decline in revenue to 2.61 million yen in 2023. The number of employees also decreased by 90%, leaving only 17 people. It can be said that the company is gradually transforming into an empty shell.
Metaplanet recently changed its name from Red Planet and attempted to shift its business focus to Web 3 and metaverse technologies, including projects like “WEN Tokyo,” “Takumi-X,” NFT trading platforms/investment, and hotel brands. It achieved some success in 2022, turning losses into profits. However, with the continuous weakness of the NFT market, it proved that the Web 3 transformation could not save the company.
Metaplanet’s strategy now goes beyond the metaverse. Its focus is on placing Bitcoin first, adopting Bitcoin as its sole strategic asset, and using long-term bonds and regular stock issuance as strategic financial choices to accumulate more Bitcoin instead of holding the weakening yen.
Metaplanet’s advantages in this strategy include:
1. Hedging against currency depreciation: With the continuous weakening of the yen, Bitcoin provides an absolute neutral value storage method compared to traditional fiat currencies, traditional value storage, and investment tools, as well as other crypto assets/securities. It has the potential to resist inflation and may continue to appreciate in the future.
2. Speculative arbitrage in the capital market: Taking advantage of extreme opportunities in the Japanese capital market, Metaplanet plans to use existing cash reserves, cash flows generated by assets, and low-cost funding with near-zero interest rates to strategically arbitrage by issuing long-term yen bonds, continuously acquiring Bitcoin when opportunities arise.
3. Becoming a Bitcoin carrier: While there are various channels for Bitcoin adoption globally, including direct holding of Bitcoin spot and financial products such as ETF/ETP, Metaplanet will directly become an Asia-listed operating company’s Bitcoin reserve carrier, providing global investors with an option and the lowest-cost way for institutional investors to hold Bitcoin.
4. Favorable tax regime: Additionally, for individuals in Japan, tax calculations are based on realized profits as miscellaneous income, with the highest tax rate reaching 55%. However, the tax environment for listed stocks/securities is significantly lower, with a realized stock profit tax rate of only 20%. In the past, Japan’s tax laws imposed taxes on unrealized cryptocurrency earnings. However, due to the upcoming amendment to Japan’s cryptocurrency tax regulations, holding Bitcoin as a company asset (not sold) will not be subject to taxation.
Furthermore, thanks to Metaplanet’s past business losses, it currently possesses over 10 billion yen in “tax loss assets,” which can be used to offset realized profits when needed.
This strategy, similar to MSTR’s, aims to increase the earnings per share in terms of Bitcoin and provide long-term support for the company’s shareholder value.
In simple terms, the strategy allows the company’s stock to become a carrier of Bitcoin, providing the simplest way for Japanese institutional investors to indirectly hold Bitcoin.
Metaplanet announced on May 13, 2024, that there are three reasons for choosing Bitcoin as its sole strategic asset:
1. Bitcoin is fundamentally superior to any form of fiat currency, traditional value storage, investment tools, and all other crypto assets/securities.
2. Bitcoin is a global and absolutely scarce digital native currency without any single issuing institution.
3. Bitcoin’s monetary policy is strictly set until 2140, making it significantly different from currency metals and other cryptocurrencies operated arbitrarily by centralized teams. The total supply of Bitcoin will forever be limited to 21,000,000 coins.
Metaplanet strategically expands its Bitcoin reserves, strengthening its balance sheet, resisting the constant depreciation pressure of the yen, and becoming a global Bitcoin-centric investment platform. I believe this is an incredibly smart decision.
Taiwan, South Korea, and other Asian countries will inevitably follow suit. Who will be the first listed company in Taiwan to adopt Bitcoin? Let’s wait and see.