Why do most company treasures not consider Bitcoin?
Did you know most of the corporate treasures are planning to invest in Bitcoin, as one of the credible sources? It is an indisputable fact that founder-managed companies, Square, Microstrategy, and Tesla have invested. A few other companies may follow, but not the crowd. The misconception is based on a misunderstanding of the corporate treasury role.
The vast companies like Google and Apple are sitting on cash. Hence, the treasurer role is quite different from a fund manager. Treasures are all about risk management, not risk-taking. And it is difficult to classify Bitcoin as an element of high risk.
Apart from the price volatility, Bitcoin’s sky-high use of energy is bad for the company’s profile. If a company has invested in Bitcoin, investors would be worried about a lack of focus in their core business.
What do treasures say?
Deputy Treasurer at Compass Group said that the key objective of the treasury is to secure the business cash. The prime priority is to save the cash and make sure that it is available, whenever the business needs it. And, in this case, Bitcoin is not an option.
Compass, a global catering business in the UK’s FTSE-100 has a market cap of $39 billion.
Naresh Agarwal highlighted that treasures are to take care of SLY, security, and liquidity. Hence, the value of liquid assets should be similar throughout. Regardless of a small amount, the cryptocurrency cannot be classified as a store of value.
Moreover, the listed companies are eager to make their profit and loss accounts predictable and Bitcoin would be an unpredictable result.
But, that is not the main concern for the companies. Someone from the treasurer’s career thought of investing in Bitcoin, Walters told that they will not be taken seriously.
Is Bitcoin a great example of negative interest rates?
Walters said that the businesses would have to live with negative interest rates for some time. It can create a problem if you did not have the cash when needed.
Whereas Naresh told that with low-interest rates, some treasures have also explored different market funds. If a listed company wants to get intrepid, many more companies would be on the Bitcoin list.
What is the company’s motive?
Walters and Naresh asked about the company’s purpose. They found out that investors are not buying Compass to expose themselves to Bitcoin.
Walters said that realistically, they cannot see any circumstances in which a company like a Compass would invest in Bitcoin.
And that is because the investors can diversify their portfolio without the company’s help.
For example, Tesla. The current market capitalization is as much Elon Musk’s persona as it is about the cars. Being highly innovative, the company faces increased competition.
Can Bitcoin holders be a good target market for the cars and Tesla investors? Well, that is still questionable because even after investing in Bitcoin, the Tesla price is 19% down from the day they invested in Bitcoin in February.
Resultantly, Tesla will sell the Bitcoin to use the money for its original price. What will happen to Bitcoin price when news leaks that Tesla is liquidating its position?
Another example is Microstrategy. The software company doubled its Bitcoin bet and borrowed $1.7 billion to invest in Bitcoin. Half of Microstrategy’s $7.7 billion market capitalization can be assigned to Bitcoin. Since the company invested in cryptocurrency, 38% of the stock has been acquired by Morgan Stankey and Vanguard.
However, the company’s CTO has been selling stock since November. And what will happen if there is a U.S. Bitcoin ETF and these investors can shift to direct Bitcoin exposure?
To conclude, while there is a notable interest in Bitcoin as an asset class, the focus is more on a different investment. Hence, Bitcoin is a capital market play. The treasurer role is quite different from a fund manager. It is about managing risk and cash, but for now, Bitcoin does not fill the necessity.