The Controversy of Cryptocurrency in Public Companies’ Treasuries
As the prominence of Bitcoin surges in midstream finance, there’s a growing trend of public companies including this cryptocurrency into their treasuries. However, this trend is not devoid of controversy. Companies such as MicroStrategy and Metaplanet are heavily invested in Bitcoin accumulation. In contrast, other firms are cautiously treading this unfamiliar territory, typically using Bitcoin as a safety net against potential inflation, rising interest rates and depreciation of fiat currencies.
Interestingly, critics express their concerns about these firms’ financial instability, questioning whether this is a genuine strategic investment or a desperate, speculative attempt to remain afloat. There are opposing views among analysts, with some viewing this trend as progressive financial engineering while others see it as a potential disaster. The expanding influence of cryptocurrency in global capital markets represents both its promise and peril.
The Growing Trend of Corporate Bitcoin Treasuries
According to data provided by crypto data aggregators, as of June 6, over 70 public companies have Bitcoin in their treasuries. It’s no secret that certain companies, such as Strategy and Metaplanet, are entirely focused on Bitcoin accumulation. However, other corporations are merely dipping their toes into the Bitcoin stacking while continuing their primary business operations.
There has been an ongoing debate on social media platforms about the exact number of companies that are accumulating Bitcoin simply for public relations purposes. It highlights the concerns about the potential risk that these companies may pose on the stability of the already volatile crypto market.
The Potential Pitfalls of Bitcoin Treasury
Journalist and analyst Sean Williams has voiced his apprehension about the potential failure of these Bitcoin treasury companies. He pointed out that many such companies are not profitable to start with and are resorting to using Bitcoin to earn quick returns due to its volatility. The lack of innovation and questionable operational success has been cited as the driving force behind the potential burst of this “Bitcoin treasury bubble”.
Williams further pointed out the instances when Bitcoin prices plummeted drastically, showing the huge risk for these firms. He controversially claimed that the scarcity of Bitcoin, and its 21 million hard cap, could be potentially changed, indicating that they are not as inviolable as widely believed.
Justification for Adopting Bitcoin Treasuries
Despite the potential risks, there are strong macroeconomic reasons that justify the adoption of corporate Bitcoin treasuries. An in-depth study by Fidelity noted that over the past five years, public companies have shown increased interest in allocating part of their capital in Bitcoin. This trend is driven by increased fiscal deficits, depreciation of fiat currency, and risks involved in geopolitical turbulence.
The study commented on the drastic response to the COVID-19 pandemic, pointing out that the stimulus payments from the world’s largest economies amounted to $10 trillion, three times more than what was witnessed during the 2008 financial crisis. This resulted in high inflation rates and a drop in the purchasing power of corporate treasuries.
This led investors, including public companies, to seek new solutions and found it in Bitcoin. With the regulatory environment in the EU and the US showing support, public confidence began to grow in Bitcoin holdings.
The True Test of Bitcoin Treasuries
Their validity will truly be tested when the market goes through another downturn. The market liquidity could also be affected by firms holding significant reserves of Bitcoin, causing an imbalance in the demand-supply dynamics.
The trend of Bitcoin reserves needs to go through a crash test to prove their resilience and longevity. It will truly distinguish the committed from the temporary tourists in the crypto market.
