Novum Alpha
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Novum Alpha

Some Companies Are Betting Big on Bitcoin, Good for Them

  • Growing number of listed U.S. firms considering allocating a proportion of their balance sheets to Bitcoin
  • High level of volatility in Bitcoin could be a double-edged sword, igniting interest in firms whose stocks may have been languishing or potentially putting at risk entire balance sheets

For many CEOs of America’s biggest firms, getting included on the S&P 500 is a hallmark of achievement.

But getting included in the prestigious index of America’s largest firms is only the first step in an ongoing battle to keep their stock relevant to the investing public.

So when business software maker MicroStrategy (-8.39%) , whose shares had been languishing for years, saw its stock price rally when it was revealed that a significant amount of its assets were invested in Bitcoin, more than a handful other CEOs and their CFOs took note.

And while CFOs are more naturally risk averse, a growing number are said to be studying the possibility of investing in Bitcoin in more than just an academic sense.

Yet CFOs who are willing to bet their treasure on Bitcoin were in for a stomach-churning ride as the bellwether cryptocurrency sunk more than 25% on a given Sunday.

Burning a hole that size in any corporate rainy-day fund would not just be career-ending, it could wipe out the firm altogether.

But a 300% rally in Bitcoin has proved to be a siren call too alluring for some firms to ignore.

And last year, Square (-2.217%) , headed by longtime cryptocurrency advocate Jack Dorsey, announced that it had converted as much as US$50 million of its total assets as of the second quarter of 2020 into Bitcoin.

For companies whose stocks have been drifting rudderless, a bet on Bitcoin could potentially reflate their fortunes.

And even companies which are doing well seem to be driven to at least consider an allocation into Bitcoin, as revealed when Tesla’s Elon Musk openly inquired on Twitter about converting “large transactions” of the electric vehicle maker’s balance sheet into Bitcoin.

But there may be some method to the madness.

For a company whose fortunes have been languishing for a while, Bitcoin may help to attract investor interest towards a speculative bet on that firm as a proxy play for Bitcoin, regardless of what happens next.

And for firms that are already enjoying a healthy rally in their stock prices, the risks of a pullback in Bitcoin aren’t as severe, because their fortunes aren’t entirely tied to the cryptocurrency.

Either way, CFOs may be lured by the talk of an incoming Biden administration undermining dollar strength and at least consider a punt on Bitcoin, and if not, their CEOs may spur them to roll the dice anyway.

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An all-weather digital asset trading firm that uses Machine Learning tools to deliver dollar-denominated returns in all market conditions.

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Phuong Nguyen

Phuong Nguyen

Business Development of Novum Alpha, a leading quantitative cryptocurrency trading firm that specializes in Managed Account and DeFi products

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