Wall Street finance officials who were considering throwing some of their company’s cash reserves into Bitcoin received a heat check this week.
Top finance officials, not usually labeled a risk-averse group, watched Bitcoin sink more than 25% in a 24-hour period starting Sunday. Burning a hole of that size in the corporate wet day fund would end up about a career at almost any S&P 500 company.
But it was hard to forget the 300% collection of the cryptocurrency last year, and a few companies joined. MicroStrategy Inc. $ 425 million of his $ 500 million cash into Bitcoin. In October, Square Inc., with longtime crypto candidate Jack Dorsey, announced that it had turned around $ 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 was just the beginning of what was sure to be a trend across Main Street.
Now that Bitcoin’s well-known volatility has re-emerged, the prospect of the cryptocurrency becoming a regular part of corporate finance – which has never been very good – looks all but dead.
“It would be a red flag for investors if corporations buy financial assets for profitability purposes unrelated to their core business,” said Michael O’Rourke, chief marketing strategy at JonesTrading.
Michael Saylor of MicroStrategy, among the first to invest in the cryptocurrency, said in September that the Federal Reserve’s relaxation of its inflation policy helped to convince the software maker’s investment invest in an enterprise.
In December, Saylor, a non-profit Bitcoin bidder, directed another $ 650 million of his company’s money, raised through highly modified notes, into the coin. That brought MicroStrategy’s ownership to about 70,470 Bitcoins, worth about $ 2.5 billion since Friday.
Bitcoin’s recent pullback has apparently not eliminated Saylor’s strategy. In a Twitter post on Tuesday, he promoted a webinar “accelerated course in his company’s #Bitcoin strategy”.
In December, Elon Musk asked Tesla Inc. about turning “big deal” balances of electric car manufacturers into balance. However, industry experts warn against the invention.
“It’s a high-risk and high-reward strategy,” said Robert Willens, associate professor at Columbia Business School. “It may not be the main idea for a company to invest most of their cash and cash products in such assets,” he said. “If Bitcoin performs poorly, there will not be enough to fund its working capital requirements.”
Blood pressure
Bitcoin price volatility is not the only risk. The coins are vulnerable to forgotten hackers, fraudsters and passwords, although institutional investors use security services to mitigate these risks. And the incoming administration of President Joe Biden could mean more scrutiny and stricter rules.
And some businesses have publishing or contractual requirements, such as finance and resources that could make it even harder to add Bitcoin to their balance sheets, according to Howard Silverblatt, senior index analyst at S&P Dow Jones.
“On a bank, can you think of a bank – we’re not talking about investing in a company but just holding the Bitcoin itself – how would they have to expose the risk back to the Fed? How do they do that? ” he said. “Can you think of Jamie Dimon’s blood pressure?”
However, there are plenty of Bitcoin bulls out there. Scott Minerd of Guggenheim Investments recently said it could grow to $ 400,000. JPMorgan Chase & Co. said. that Bitcoin has the long-term potential to reach $ 146,000. Such projections only exacerbate the fear of missing out on the ups and downs.
“Is it a clever strategy? It could be, ”Willens said of CFOs investing in cryptocurrencies. “But, of course, if it doesn’t, it would become something that could pose a physical threat. ”
This story was published from a wire group group with no text changes. Only the headline has changed.
