[Insight] Bitcoins Replacing Cash

Recent news said that Square Co. Inc., a recently NYSE-listed payment service provider decided to invest some of their cash into bitcoins. Since it was announced after the words last month that MicroStrategy Inc., the NASDAQ-listed enterprise software platform provider, will invest more than USD 425 million into bitcoins, this was much more welcoming news.

Accumulated Cash and Poor Profits

Every company holds a certain amount of cash and cash equivalents in their balance sheets. And that is because the management of businesses requires lots of cash-asset in many circumstances, such as paying for the salaries of employees or purchasing raw materials in order to make products. Plus, funds for R&D or mergers and acquisitions (M&As) also require cash, and if the commercial paper (CP) or corporate bonds issued for large-scale financing fall due, the company has to return the principals and interests to the investors, so their needs for cash-assets are almost endless.

So, the world’s largest companies, such as Apple Co. Inc., Alphabet Co. Inc., the parent company of Google, and Berkshire Hathaway Inc. possess a large amount of cash equivalent around USD 100 billion to USD 200 billion, which converted into hundreds of trillions in KRW.

But the problem is that their cash-in-possession is not that profitable. Since the outbreak of COVID-19 Pandemic, the world real interest rate has dipped below zero percent, so, even they accumulate their cash in banks, they cannot get a decent amount of interest earnings. Even if they wish to buy stocks or bonds, they must concern and consider the possibility of losses. In such circumstances, the investments to the Bitcoins by Square and MicroStrategy can show new ways of solution about how the companies should use their surplus cash.

Companies Transferring from Cash to Bitcoin Investments

First of all, Square announced the plan that they will buy Bitcoins equivalent to around USD 50 million which is one percent of the cash they hold. MicroStrategy has invested more than USD 425 million in bitcoins, which are 4 percent of its current cash. Furthermore, Galaxy Digital Holdings Co. Ltd., a financial services firm specialized in digital assets, bought bitcoins worths around USD 134 million in June, and Riot Blockchain Co. Inc. and Cypherpunk Holdings Co. Inc., also invested in Bitcoins around USD 7.2 million respectively.

Most of all, companies engaging in payment services or fintech, such as Square Co. Inc., can be the candidates for investments. Amrita Ahuja, Chief Financial Officer (CFO) at Square, said, “We believe that bitcoin got the potential to become a ‘more ubiquitous currency’ in the future,” She also said, “As its adoption in the real economy grows, our investments to the Bitcoin market should be increased. This investment will be the one step ahead for that long journey.”

In such tidings, JP Morgan Chase reported: “Square Co. Inc. is likely to purchase more Bitcoins,” They also predicted, “other payment companies are likely to follow in Square’s footsteps.” They also added, “This may be a strong vote out of confidence for the future of Bitcoin, or a signal that they have seen the potential in virtual assets (cryptocurrency).” In fact, PayPal and Venmo, payment companies competing with Square Co. Inc, are also planning to create platforms where the direct transaction of virtual assets (cryptocurrencies) through their websites could be possible. Therefore, we can say that the possibility of their investment in Bitcoin is considerably high.

More Companies Turning to Bitcoins

Plus, it is also natural to consider Twitter will also invest its cash in Bitcoins since its CEO Jack Dorsey was a vocal advocate of virtual assets (cryptocurrencies) for a long time. Other companies, such as Tesla, Apple, and Berkshire Hathaway under the ownership of Warren Buffet, are also reckoned as candidates that might invest in Bitcoin.

Companies in the Standard & Poor (S&P) 500 currently possess cash and cash equivalents worth USD 2.3 trillion in total. If they are about to invest only one percent of their cash-asset in Bitcoin, that means a total of USD 23 billion could flow into the Bitcoin market. The amount exceeds 10 percent of the total Bitcoins in the world, which worth USD 200 billion. After hearing the news that Square Co. Inc. is buying bitcoins, Changpeng Zhao, CEO of Binance, posted his expectation on Twitter, saying: “Now who is going to join and hold Bitcoins as their corporate assets?”

Ray Dalio, the Genius of Hedge Funds and the leader of Bridgewater Associates, the world’s largest hedge fund firm, also saw the downfall of the dollar, and said: “Cash is Trash.” Since the Federal Reserve System (Fed), the central bank of the United States, publicly announced that they are going to keep the interest rates near zero until at least 2023, the situation is indeed in favor of Dalio’s prospect. The expectation for who will be the next Squares Co. Inc. and who will lead the mid-to-long term rally of the Bitcoin is already soaring.

*This research and analysis document has been prepared for the purpose of providing information that can be used as a reference based on our reliable data and information, but we cannot guarantee its accuracy or completeness.

*The document has reflected the individual’s opinion and it may not be consistent with the company’s official point of view.