With the heightened concern for inflation, public companies are looking for a solid store of value to protect their profits.
There’s no denying it: there is growing support for Bitcoin among publicly traded companies. As of June this year, more than 34 publicly traded companies collectively held more than 213,000 Bitcoin on their balance sheets, representing approximately 1.14% of the asset’s circulating supply. From vehicle manufacturers (Tesla) and business intelligence companies (MicroStrategy) to crypto-native companies (Coinbase, Riot Blockchain, Inc) and fintech platforms (Square, Inc), future-oriented companies are increasingly relying on “digital gold” to implement attractive return with rising inflation.
Why public companies are buying bitcoin
This influx is a relatively recent phenomenon. In fact, it’s been a little over a year since Nasdaq-listed MicroStrategy became the first publicly traded company to buy Bitcoin as part of a capital allocation strategy. Back then, CEO Michael Saylor called Bitcoin “a reliable store of value and an attractive asset with more long-term appreciation potential than holding cash”.
Six months later, automaker Tesla made a similar comment in a filing with the SEC, claiming its $ 1.5 billion Bitcoin purchase offered “more flexibility to further diversify and maximize returns on our cash “.
In truth, few would bet that this trend will continue. After all, Bitcoin’s performance over the past year has helped generate a decent profit for the companies that added it to their corporate coffers. More specifically, for those who held up amid choppy market conditions, such as when the cryptocurrency plunged 30% in May – before bouncing back and losing 12% the day.
In an interview, Jehan Chu, co-founder of blockchain investment and trading company Kinetic, said, “The Bitcoin land grab is underway and a growing number of Fortune 500 companies such as PayPal, MicroStrategy and others are adding significant positions to their balance sheets.” “Expect BTC FOMO to become BTC POMO (Panicked On Missing Out) if SMEs follow suit, resulting in a virtuous boom in panic buying and price spikes.”
While price volatility will remain a major barrier for those with low risk tolerance, a recent report from asset management company Pantera Capital suggests that such fluctuations are less severe, largely due to the fact that the market is becoming “wider, more valuable and more institutional.” If this assessment is correct in the months and years to come, more public corporations will seriously consider investing a percentage of their holdings in BTC, especially if it continues to hit new all-time highs.
Such a possibility can hardly be ruled out. Fidelity Investments Director of Global / Macro Jurrien Timmer believes Bitcoin will hit $ 100,000 by 2023, while other strategists see the six-digit milestone hit by the end of 2021. In any case, Bitcoin’s short-term value may not be as big a factor of acceptance as the general cultural sentiment. A sentiment much attributed to events like the recent launch of the first ever publicly traded Bitcoin fund in the US, which attracted a record $ 1 billion in investor money.
The appearance of a Bitcoin ETF on the world’s largest stock market is of course an important milestone as it is practically a seal of approval for the legitimacy and acceptance of Bitcoin by traditional financial institutions. However, that doesn’t mean that an ETF is the same as people who physically hold Bitcoin. Futures ETFs have no Bitcoin support and are instead better viewed as a “bet” on potential inflation protection. That’s why Grayscale’s global ETF director Dave LaValle says investors “should have a choice between ETFs based on futures and physical bitcoins.”
Aside from the introduction of the ETF and recent price actions, Bitcoin has benefited in its reputation from the rhetoric and actions of the big banks, which have either softened their attitudes towards the asset or created their own Bitcoin trading divisions. Last month, for example, the US Bank – the fifth largest retail bank in the country – announced that it would offer bitcoin custody services to fund managers. Bank of New York Mellon, Northern Trust and State Street are also getting into the crypto-custody business, while Goldman Sachs has begun providing its institutional trading clients with research reports from The Block’s cryptocurrency data committee.
Hyperinflation threat strengthens case for Bitcoin
The consumer price index shows prices rose 5.4% year over year in September, a nearly 30-year high. Forget about inflation, rumors of impending hyperinflation are circulating – especially on crypto twitter. One person who raised the threat is Square / Twitter CEO Jack Dorsey, who tweeted, “Hyperinflation will change everything. It happens. “October 23rd.
Elon Musk – who was never hesitant to give an opinion – reiterated the view a few days later, noting “strong inflationary pressures in the short term”.
“Some listed companies see Bitcoin as a more stable asset than the fiat currency, since the fiat currency is subject to fiscal policy and thus fluctuations,” said Tobias Bauer, Principal at the Blockchain Founders Fund, in an interview. “For example, Bitcoin price only increased during the pandemic while currencies fluctuated around the world due to the policies implemented by governments. In short, public corporations see Bitcoin as a way to protect themselves from fiat currency inflation. “
Fears of inflation, no doubt exacerbated by attempts by the Federal Reserve Board to steer the post-COVID-19 economy through staggering stimulus measures, generally bolster Bitcoin’s digital gold narratives. As a demonstrably scarce commodity with a fixed supply of money, the cryptocurrency has long been touted as a protection against inflation. Last year none other than billionaire hedge fund manager Paul Tudor Jones said Bitcoin “remembered gold when I first got into the business in 1976”.
In June, Jones made this earlier comment, commenting, “I like Bitcoin as a portfolio diversifier … The only thing I know for sure is that I am 5% in gold, 5% in bitcoin, 5% in cash, 5% in commodities.” . “
Whether or not the inflationary chickens come home to sleep is a guess. But as Bitcoin continues to gain legitimacy, an institutional buyer’s market could be in front of us. Which public company will Tesla take down the rabbit hole next?
This is a guest post by Sadie Williamson. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
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