Since the beginning of 2020, various corporations have spent more than $5 billion on cryptocurrencies, and, judging by the disposition of their management, they are set to continue their vigorous endeavors in the crypto domain. Below, we are going to make the case as to why specific public companies invest in cryptocurrency and how it reverberates through the market.
Which companies invest in BTC?
top-15 Bitcoin investors among public companies according to Bitcoin Treasuries
MicroStrategy LLC. The company began buying cryptocurrency in August 2020. First, MicroStrategy announced the purchase of 21,400 BTC for $250 million a month.Then, it bought 16,700 BTC for $ 175 million, and another 29,600 BTC for $ 650 million in December. Following that, MicroStrategy continued to purchase Bitcoin but in smaller batches. As a result, the total value of BTC accumulated on the company's accounts is about 105,085, which is roughly equal to over $ 4.1 billion.
Tesla, Inc. The electric car manufacturer invested $ 1.5 billion in Bitcoin in early 2021. In a statement to the SEC, Tesla's representatives announced the company has decided to update its investment policy to achieve "more flexibility in further diversification and increased cash returns." Tesla now owns 42,902 BTC worth about $ 1.706 billion.
Square, Inc. The payment solution provider delved into cryptocurrency investment in the third quarter of 2020: in October, the company bought 4,709 BTC for $ 50 million and another 3,318 BTC for $ 170 million over the next few weeks. As a result, Square's stockpiled 8,027 BTC worth $ 319 million.
Marathon Digital Holdings. The former patent-holding company called the Marathon Patent Group used to buy up patents and employed them to sue large corporations. But after the hype that sparked around bitcoin in 2017, Marathon decided to switch from a patent troll to a miner. The company gradually accumulated 5,784 BTC, a bulk of which was purchased in January 2021 for $ 230 million.
Coinbase. It’s the first public cryptocurrency exchange in the United States to control 11.3% of the global cryptocurrency asset market. Coinbase currently holds 4,482 BTC worth $ 178 million in wallets.
Reasons for companies to buy digital assets
Hedging the risks with fiat currency inflation is one of the driving factors behind buying digital assets. In 2020 the USA government poured $9 billion into its economy (22% of ever issued dollars). Businesses worry that it may cause depreciation of the USD and other fiat currencies. Bitcoin can provide a major loophole in the banking system and protect the value of the capital.
“Bitcoin is the best collateral in the world, it is incomparable with gold and other mediums of exchange. If you have $ 100 million in cash, then within 100 years you will lose 99%, and if you invest in gold, you will still lose at least 85%. With Bitcoin, everything is transparent - anyone can check in seconds that I own this cryptocurrency“, says Michael Saylor, CEO of MicroStrategy.
This opinion is shared by Tesla, Square, and Nexon.
What do companies get from investing in cryptocurrencies?
The major advantage of owning cryptocurrency for large companies is the opportunity to generate investment returns. For example, Square, in the letter to shareholders, reported that net revenue for the second quarter of 2021 equated to $9.7 billion (195% more than in 2020). At the same time, excluding investments in bitcoins, revenue would have amounted to only $ 3.5 billion (65% more than in 2020), meaning Bitcoin investments brought Square $ 6.24 billion in net profit.
Square Q2 2021 Shareholder Letter
Cryptocurrency buying can furnish the boost in the value of the company’s stock. According to Reuters, the value growth of public companies involved in acquisition of crypto assets is way ahead of the market average. For example, Tesla stock climbed 20% (compared to 0.2% market growth), and MicroStrategy shares saw a rise by an impressive 228% (versus 28.6% in the market).
How much the growth in stock of companies invested in bitcoin outpaced the average value for the market as a whole. Source: Reuters
Ways for companies to buy cryptocurrencies
There are a number of ways for public companies to add cryptocurrencies to the balance sheet. For example, Square used its infrastructure and Over-the-Counter method for the transaction. Since 2018, its cash transfer app called Cash App allows users to acquire bitcoins. Square obtained its package from the same broker.
Several OTC platforms in the US are subject to oversight by the Securities and Exchange Commission (SEC) and allow for legal purchase of large amounts of bitcoins. These platforms more effectively accommodate corporate clients than common exchanges like Coindesk. When buying a large amount on the exchange, the price goes up during the transaction - “cheap” counterparties are the first to sell-off. In addition, the opening of large positions induce an increase in the rate. Brokers, on the other hand, provide confidentiality, predictable price, and rapidity of transaction.
The second scenario for buying a large volume of cryptocurrency is to use services of an exchange as a broker. Various exchanges provide brokerage services. You can have a wallet, but the exchange itself ensures the safety of your investment and the predicted price. These exchanges include Coinbase, Kraken, and Binaryx.
Another option to pursue is to enlist the support of an investment fund. In December 2020, the American insurance giant MassMutual, worth $ 235 billion, made a public entrance into bitcoin with a purchase of 5,470 BTC for about $ 100 million through the NYDIG fund based in New York. Now, the company is a proud holder of about $ 2.3 billion in digital assets.
How companies’ investments in cryptocurrency shake the market
Large companies' support of Bitcoin and other cryptocurrencies tend to instantly increase their value. For example, after Tesla's $ 1.5 billion investment in Bitcoin in January, the BTC price skyrocketed by 23% in one day. The same thing happened every time MicroStrategy announced another purchase of Bitcoin. The company bought 229 BTC on May 13 and the rate escalated by 3%, and the purchase of another 271 BTC on May 18 spurred the price to jump by 1%.
In the long term, the purchase of cryptocurrency by prominent companies is likely to lead to further market regulation. Nevertheless, according to Deloitte research, the question of legalization might shift from "Is this allowed?" towards "How to do it right?". In the meantime, the rules for displaying cryptocurrency in the company's account statements, fiscal reports, and taxation should be addressed, otherwise, a lot of difficulties may ensue.
The support by public companies contributes to the mainstream acceptance of digital assets by businesses and ordinary people, as well as the further penetration of cryptocurrency into the global economy.
