Photographer: Yuriko Nakao / Bloomberg
Photographer: Yuriko Nakao / Bloomberg
Wall Street finance executives who were thinking of pouring some of their company’s cash reserves into Bitcoin received a heat check this week.
Chief Financial Officers, not commonly known as a risk-loving couple, looked at Bitcoin sink more than 25% in a 24-hour period from Sunday. Burning a hole of that magnitude in the corporate rainy day fund would mean the end of the career at virtually any S&P 500 company.
Still, the cryptocurrency’s 300% rally last year was hard to ignore, and a few companies dived into it. From MicroStrategy Inc. invested $ 425 million of its $ 500 million cash in Bitcoin. In October Square Inc., led by long-time cryptocurrency advocate Jack Dorsey, announced that it has converted approximately $ 50 million of its total assets into the token as of the second quarter of 2020. Proselytizers like Bill Miller of Miller Value Partners said this was just the beginning of what was sure to become a trend main Street.
With Bitcoin’s famous volatility on the rise again, the outlook for the cryptocurrency to become a regular part of corporate treasuries – never very well – looks almost dead.
“It would be a red flag for investors if a company were to buy financial assets for speculation purposes unrelated to their core business,” said Michael O’Rourke, chief market strategist at JonesTrading.
MicroStrategy’s Michael Saylor, one of the first to put cash into the cryptocurrency, said in September that the Federal Reserve’s relaxation of inflation policies had helped him invest the enterprise software maker’s reserves.
In December, Saylor, an outspoken Bitcoin proponent, plowed another $ 650 million in cash from his company, raised by convertible senior notes, in the currency. That brought MicroStrategy’s holdings to about 70,470 Bitcoins, worth about $ 2.5 billion as of Friday.
Bitcoin’s recent downturn does not seem to have derailed Saylor’s strategy. In a Twitter post on Tuesday, he promoted his company’s “ accelerated course # Bitcoin strategy ” webinar.
In December, Elon Musk of Tesla Inc. inquired about converting “big deals’ of the electricalmechanic balance in the currency. However, industry experts warn against the tactic.
“It’s a high-risk, high-reward strategy,” said Robert Willens, associate professor Columbia Business School. “It may not be the best idea for a company to put most of its cash and cash into such an asset,” he said. “If Bitcoin performs badly, it won’t have enough to fund its working capital requirements.”
Blood pressure
Bitcoin price volatility isn’t the only risk. The coins are vulnerable to hackers, fraud and forgotten passwords, although institutional investors use custodial services to mitigate those dangers. And President-elect Joe Biden’s new administration could mean more control and stricter regulations.
And according to Howard Silverblatt, senior index analyst at S&P Dow Jones, certain industries, such as financial institutions and utilities, have disclosure requirements or covenants that can make it even more difficult to add Bitcoin to their balance sheets.
“In a bank, can you imagine that a bank – we’re not talking about an investment in a company, but just holding the Bitcoin itself – how they 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 plenty of Bitcoin bulls. Scott Minerd of Guggenheim Investments recently said it could grow to Are worth $ 400,000. JPMorgan Chase & Co. said Bitcoin has the long-term potential of reaching $ 146,000. Projections like this increase the fear of missing out on the boom.
“Is it a smart strategy? That could be, ”Willens said of CFOs who invest reserves in cryptocurrencies. “But if it didn’t, it would of course become something that could threaten the very existence of a company.”
– With the help of Vildana Hajric and Tom Contiliano