A Bit rich: Corporates are ditching cash for crypto

Data Insight 10 August

A Bit rich: Corporates are ditching cash for crypto

Cash is no longer king, it seems. With inflation running wild, fiat currencies sitting idly on balance sheets are more of a bane than a boon. Recognizing this fact, forward-thinking corporate treasuries are increasingly embracing Bitcoin as a deflationary substitute.

1/ First, get in

An analysis by Mergermarket shows that six large firms are holding US$7 billion worth of the leading cryptocurrency. Exactly how profitable this strategy has been so far depends on how early these corporates got in on the game and their average entry price. Of the six firms tracked, the median price return of their BTC holdings has been 46%, with Galaxy Digital Holdings, a blockchain banking firm, boasting the highest return at 377%.

2/ Stack your bags

The biggest bull by some distance is business intel firm Microstrategy, led by Bitcoin maximalist Michael Saylor, who claims to have seen the crypto light amid the pandemic. His company first invested as recently as August 2020, adopting the digital currency as its primary treasury reserve asset. In June 2021 the company doubled down, issuing US$500 million in senior secured notes with proceeds going to fund the additional purchase of BTC, with its current holdings sitting at 105,085.

Meanwhile, the latest to the party is Tesla, which is in second place with 43,200 BTC. The electric carmaker purchased US$1.5 billion of the asset as recently as January 2021, while at the same time announcing that it would accept BTC transactions for its vehicles.

3/ Be prepared

And then a U-turn. In May the company's founder Elon Musk said Tesla would no longer accept Bitcoin for car purchases, citing long-brewing environmental concerns for a change in position on the cryptocurrency.

Musk has since developed an uneasy relationship with BTC champions, who see him as the ultimate troll, his tweets sending the price of the asset swinging before it eventually succumbed to growing FUD (fear, uncertainty, and doubt). The price of Bitcoin cratered in May on Tesla's volte-face, losing more than 50% of its value from its all-time high of around US$65,000.

Tesla has since indicated it will likely accept BTC again once it conducts due diligence on the amount of renewable energy used to mine the currency. If this assessment yields positive findings, and with the price of the crypto bidding a recovery from its mid-July lows, more corporates could soon join the pack. If not, cash will be burning a large hole in their balance sheets.

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