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Photographer: Yuriko Nakao / Bloomberg
Photographer: Yuriko Nakao / Bloomberg
Wall Street finance officials who were planning to dip some of their company’s cash reserves into Bitcoin got a thermal check this week.
CFOs, who aren’t generally known as a risk-loving group, looked at Bitcoin flow more than 25% in a 24 hour period beginning on Sunday. Burning a hole this size in the company’s fund for rainy days would be tantamount to a career end at virtually any company in the S&P 500.
Still, the 300% rally in cryptocurrency last year has been hard to ignore, and a few companies have plunged. MicroStrategy Inc. invested $ 425 million of his $ 500 million in cash in Bitcoin. In October Square Inc., run by longtime crypto advocate Jack Dorsey, announced it had converted around $ 50 million of its total assets in the second quarter of 2020 into token. Proselyters like Bill Miller of Miller Value Partners said this was just the start of what was sure to be trending across Main Street.
Now that Bitcoin’s famous volatility has grown again, the prospects of cryptocurrency becoming a regular part of corporate treasures – never very good – seem almost dead.
“It would be a red flag for investors if a company bought financial assets for speculative purposes unrelated to its core business,” said Michael O’Rourke, chief market strategist at JonesTrading.
Michael Saylor of MicroStrategy, among the first to put money into cryptocurrency, said in September that the Federal Reserve’s easing of its inflation policy had convinced him to invest the manufacturer’s reserves of business software.
In December, Saylor, a staunch supporter of Bitcoin, plowed another $ 650 million in cash from his business, lifted by senior convertible notes, in the room. This brought MicroStrategy’s holdings to around 70,470 Bitcoins, worth around $ 2.5 billion on Friday.
Bitcoin’s recent pullback does not appear to have derailed Saylor’s strategy. In a Twitter post on Tuesday, he promoted his company’s webinar on the “#Bitcoin Crash Course”.
In December, Elon Musk of Tesla Inc. inquired about the conversion “major transactions ”in electricityCar manufacturer balance sheet in the room. However, industry experts warn against this tactic.
“It’s a high risk, high return strategy,” said Robert Willens, assistant professor at Columbia School of Business. “It might not be the best idea for a business to put most of its cash and cash in an asset like this,” he said. “If Bitcoin behaves badly, it won’t have enough to fund its working capital needs.”
Arterial pressure
Bitcoin’s price volatility isn’t its only risk. Parts are vulnerable to the Pirates, fraud and forgotten passwords, although institutional investors use custodial services to reduce these dangers. And President-elect Joe Biden’s new administration could mean more scrutiny and tighter regulation.
And some sectors, such as finance and utilities, have disclosure requirements or covenants that could make it even more difficult to add Bitcoin to their balance sheets, according to Howard Silverblatt, senior index analyst at S&P Dow Jones.
“On a bank, can you imagine a bank – we’re not talking about an investment in a company, just owning the Bitcoin itself – how it should show the risk to the Fed? How do they do that? “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 he could become worth $ 400,000. JPMorgan Chase & Co. said Bitcoin has the long-term potential to reaching $ 146,000. Projections like these only add to fears of missing the boom.
“Is this a smart strategy? It could be, ”Willens said of CFOs investing reserves in cryptocurrencies. “But, of course, if it didn’t, it would become something that could threaten the very existence of a company.”
– With the help of Vildana Hajric and Tom Contiliano
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