Photographer: Yuriko Nakao / Bloomberg
Photographer: Yuriko Nakao / Bloomberg
Wall Street finance executives who were thinking of putting some of their company’s cash reserves into Bitcoin received a heat check this week.
Senior financial officers, who are not generally known as a risk-loving group, watched Bitcoin sinking more than 25% in a 24-hour period from Sunday. Burning a hole of this size in the corporate fund for rainy days would be the end of a career in virtually any S&P 500 company.
However, the recovery of 300% of the cryptocurrency last year was hard to ignore and some companies sank. MicroStrategy Inc. invested $ 425 million in cash of $ 500 million in Bitcoin. In October Square Inc., led by longtime cryptographer Jack Dorsey, announced that it had converted approximately $ 50 million of its total assets as of the second quarter of 2020 into the witness. Proselytists like Bill Miller of Miller Value Partners said this was just the beginning of what would surely be a trend Main street.
Now that the famous volatility of Bitcoin has grown again, the prospects of cryptocurrency becoming a regular part of corporate treasures (never very good) seem dead.
“It would be a red flag for investors if a corporation bought financial assets for speculation purposes that were unrelated to its core business,” said Michael O’Rourke, chief market strategist at JonesTrading.
Michael Saylor of MicroStrategy, one of the first to put cash into cryptocurrency, said in September that the Federal Reserve’s easing of its inflation policy helped convince it to invest the reserves of cryptocurrency makers. business software.
In December, Saylor, a staunch supporter of Bitcoin, plowed another $ 650 million in cash from your company, rises through senior banknotes convertible into currency. This brought MicroStrategy’s holdings to approximately 70,470 bitcoins, valued at about $ 2.5 billion as of Friday.
Bitcoin’s recent retreat doesn’t seem to have derailed Saylor’s strategy. In a Twitter post on Tuesday, he promoted his company’s “Accelerated #Bitcoin Strategy Course” webinar.
In December, Elon Musk of Tesla Inc. asked about conversion “large transactions ”of thecar manufacturer currency balance. However, industry experts warn against the tactic.
“It’s a high-risk, high-reward strategy,” said Robert Willens, an adjunct professor at Columbia Business School. “It may not be the best idea for a company to invest most of its cash and cash in an asset like this,” he said. “If Bitcoin goes bad, it won’t be enough to fund its working capital requirements.”
Blood pressure
Bitcoin price volatility is not its only risk. Coins are vulnerable hackers, fraud and forgotten passwords, even though institutional investors use custody services to reduce these dangers. And the incoming administration of President-elect Joe Biden could mean more strict control and regulations.
And certain industries, such as financial and utility companies, have disclosure requirements or pacts that could make it even harder to add Bitcoin to their balance sheets, according to Howard Silverblatt, a senior index analyst at S&P Dow Jones.
“In a bank, you can imagine a bank (we’re not talking about an investment in a company, we’re just talking about keeping Bitcoin itself), how should they show the risk to the Fed? How do they do it?” He said. “Can you imagine Jamie Dimon’s blood pressure?”
Still, there are a lot of Bitcoin bulls. Scott Minerd of Guggenheim Investments recently said it could grow worth $ 400,000. JPMorgan Chase & Co. said Bitcoin has long-term potential reaching $ 146,000. Projections like these only add to the fear of losing the boom.
“Is it a smart strategy? It could be, “Willens said of financial investors in cryptocurrency reserves.” But of course, if not, it would become something that could threaten the very existence of a corporation. “
– With the assistance of Vildana Hajric and Tom Contiliano