The increasing number of notable companies who have adopted Bitcoin as a principal holding indicates the cryptocurrency’s growing credibility
Asset manager MicroStrategy was the first major publicly owned company to announce that with $425 million in Bitcoin, BTC is a principal holding in its treasury reserve strategy.
On October 8, mobile payments company, Square, announced it had invested $50 million in Bitcoin (BTC). Within a week, asset manager Stone Ridge Holdings announced the purchase of $114 million worth of Bitcoin as a part of its treasury reserve strategy. As fiat currency is losing its value amid the COVID 19 economic recovery measures and gold is underperforming, Bitcoin has emerged as a reserve asset alternative for liquidity-flush firms.
Explaining the phenomenon, Saifedean Ammous, economist and author of The Bitcoin Standard: The Decentralized Alternative to Central Banking, told Cointelegraph, “While I would have expected to see such firms take small positions more as a hedge, it speaks volume to the growing credibility of Bitcoin that as soon as they became intrigued by the value proposition, they chose to go with a large allocation.”
The COVID 19 pandemic has changed the macro backdrop for fiat currency, Oanda’s senior market analyst, Edward Moya, explained, adding that the Fed’s accommodative monetary stance has made institutional investors scramble for alternative investments. Further Bitcoin acts as a means to diversify from bonds and the corona crisis only makes it look more favourable, he said.
Lennard Neo, head of research at Stack Funds noted that firms now view Bitcoin as a hedge or insurance against current market conditions. “With these companies entering the markets, it opens the floodgates and establishes some form of confidence for the rest to follow,” he added.
Even after the COVID-19 turndown is abated, companies are no longer satisfied with holding their cash reserves in banks on treasury bonds. Stone Ridge’s announcement was a call for banks and philanthropies to accept Bitcoin as a principal component of their treasury reserve strategies. Moya explained that though BTC remains a risky asset, “once the dollar resumes a steady downward trend, Bitcoin and other cryptos will attract some safe-haven flows alongside gold.”
The experts considered whether the move to Bitcoin started by the three major companies could push institutional investors and Fortune 500 companies to follow suit. It’s more a matter of when, not if, said Paul Cappelli, a portfolio manager at Galaxy Fund Management. He added that cryptocurrency offers new ways to diversify portfolios and maximise balance sheet returns.
Written by Harshini Nag