Photographer: Yuriko Nakao / Bloomberg
Photographer: Yuriko Nakao / Bloomberg
Wall Street finance executives, who were considering introducing some of their company’s cash reserves into Bitcoin, received a heat check this week.
Chief Financial Officers, who are not generally known as a risk-loving group, tracked Bitcoin sink more than 25% in a 24-hour period from Sunday. Burning a hole of that size in the corporate fund for the rainy day would mean the end of a career at almost any S&P 500 company.
However, last year’s 300% cryptocurrency rally was hard to ignore and several companies sank. MicroStrategy Inc. has invested $ 425 million of its $ 500 million in Bitcoin. In October Square Inc., led by Jack Dorsey, a longtime cryptocurrency lawyer, announced that it has converted approximately $ 50 million of its total assets in the second quarter of 2020 into a token. Proselytizers like Bill Miller of Miller Value Partners said this is just the beginning of what will definitely be a trend Main Street.
Now that the famous volatility of Bitcoin has recovered again, the prospects for cryptocurrency to become a regular part of corporate treasuries – never very good – seem almost dead.
“It would be a red flag for investors if a corporation bought financial assets for speculation purposes unrelated to their 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 easing his Federal Reserve’s inflation policy helped persuade him to invest in software makers’ reserves for businesses.
In December, Saylor, a staunch advocate of Bitcoin, pointed to another $ 650 million in his company’s cash, raised by convertible senior banknotes into currency. This brought MicroStrategy’s holdings to about 70,470 bitcoins, worth about $ 2.5 billion as of Friday.
The recent withdrawal of Bitcoin does not seem to have derailed Saylor’s strategy. In a post on Twitter, on Tuesday, he promoted the web seminar “accelerated course in the #Bitcoin strategy”.
In December, Elon Musk to Tesla Inc. asked about converting “large transactions ”ofcar manufacturer currency balance. However, industry experts warn against tactics.
“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 put most of its cash and cash items into such an asset,” he said. “If Bitcoin is poorly formed, it will not have enough to fund its working capital requirements.”
Blood pressure
Bitcoin price volatility is not its only risk. Coins are vulnerable to hackers, fraud and forgotten passwords, although institutional investors use custody services to reduce these dangers. And the administration of newly elected President Joe Biden could mean more stricter control and regulations.
And certain industries, such as finance and utilities, have disclosure requirements or conventions that could make it even more difficult to add Bitcoin to their balance sheets, according to Howard Silverblatt, a senior analyst at S&P Dow Jones.
“On a bank, you can imagine a bank – we’re not talking about an investment in a company, we’re just owning Bitcoin itself – what should the Fed’s risk look like? How do I do that? he said. “Can you imagine Jamie Dimon’s blood pressure?”
However, there are a lot of Bitcoin bulls. Scott Minerd of Guggenheim Investments recently said it could grow to be worth $ 400,000. JPMorgan Chase & Co. stated that Bitcoin has the long-term potential of reaching $ 146,000. Projections like these only add to the fears of losing the boom.
“Is it 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 corporation.”
– With the assistance of Vildana Hajric and Tom Contiliano