No Matter What: Institutional Crypto Buying Concerns

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According to recent survey, 5% of CFOs of the world’s largest companies plan to invest in Bitcoin in 2021 and another 11% said they can do it closer to 2024. Those numbers, however, is much lower than 70%, which are closely following the situation in this market, but have not yet made a clear decision about investments, according to Cointelegraph.

The survey was carried out by Gartner and was catalysed by tidings about Tesla investing 8% of its cash reserve (that is $1.5 billion) in Bitcoin. MicroStrategy Inc., which has also invested large sums in the token, announced a $600 million convertible bond offering in February, intending to use the proceeds to acquire additional Bitcoins.

Another major player in the cryptocurrency market can rightfully be considered the American technology company Square, which also recently announced the addition of $170 million worth of Bitcoins to its stack – while the company already spent $50 million on investments in Bitcoin last fall.

The 77 respondents to the Gartner survey, including 50 CFOs and other senior executives from various companies, voiced dramatically different views during the survey, and often the industry in which the company operates played a leading role in announced plans. The greatest interest in Bitcoin is observed in the tech sector, but even there, 50% of respondents (regardless of the size of the organization) expect the cryptocurrency to remain in the future.

While the majority of those surveyed (84%) said their main investing fears are related to the financial risk associated with Bitcoin’s high volatility, it appears that many are simply adopting a wait-and-see approach as they watch the situation unfold. More than 70%, in particular, said that the main thing they want to see before making a decision is what others will do with Bitcoin. Almost the same number of respondents would like to receive more specific information from regulators in order to understand and articulate the inherent risks associated with owning a digital asset.

Alexander Bant, head of research at Gartner, noted that “Finance leaders who are tasked with ensuring financial stability are not prone to making speculative leaps into unknown territory“. “It’s important to remember this is a nascent phenomenon in the long timeline of corporate assets”, he added.

Other concerns expressed included board risk aversion (39%), slow adoption as an accepted form of payment or exchange (38%), lack of understanding (30%), cyber risks (25%), and complex accounting treatment (18%).

While it is very difficult to get statistically significant results from studies with such a small number of participants, it is worth noting that increase in corporate investment will seriously affect Bitcoin in near future. In the second half of 2020, for example, the US media holding S&P Global, which is outside the financial and utilities sectors, had about $2 trillion in cash reserves, more than double the current market capitalization of Bitcoin. In simple terms, there is a lot of money that can be invested in Bitcoin.

The tech sector alone could invest at least $640 billion, although most companies have given only a small percentage to Bitcoin so far. In February, investment firm ARK Invest suggested that if “all S&P 500 companies were to allocate 1% of their cash” to this market, the price of the digital asset would rise by about $40,000, totaling about $90,000, as Cointelegraph informs. Continuing with their thought, ARK experts stated that if corporate investment grows to 10% of cash reserves, Bitcoin will grow by $400,000.

Galaxy Digital co-president Damien Vanderwilt, in an interview with Bloomberg, said that in his opinion, the main factors for investing in cryptocurrency are safety (that is, high degree of risk) and taxes.

“When we think about the conversations we have with corporates and institutional clients and any part of those constituencies considering investing in the sector, the first order problem is safety and are the assets that they’re buying going to be safe and available and secure”, he said in particular. “The second order problem, particularly for the corporates, is tax treatment and the way that particularly under GAAP accounting in the U.S., Bitcoin is viewed as an intangible asset“.

They’re not unsolvable problems or things that companies can’t get comfortable with, but it does take a little bit of time“, – Vanderwilt concluded.

The total number of cryptocurrency users worldwide, according to Crypto exchange and debit card provider Crypto.com report, has grown from 66 million 106 million from May 2020 to January 2021. The highest growth rates were recorded in June and August 2020, as well as January 2021.

The growth in August was largely driven by the popularity of decentralized finance, Crypto.com said. By the winter, a serious factor was the launch of support for cryptocurrency purchases for US users from PayPal, and in the end, in November 2020 and institutional adoption from Grayscale and Microstrategy intersected with strong Bitcoin price performance to spur yet wider adoption.

By January, the global number of Bitcoin users was estimated to be 71 million, as compared with 14 million for Ether. Each coin saw a tremendous surge in users that month – 30.2% and 13.1%, respectively.

As you can see, the growth is continuous, and more and more of the largest companies in the world are beginning to show serious interest in Bitcoin. But what stops others from taking this step?

“For most companies in the U.S., U.S. GAAP accounting rules really require you to account for those investments like an intangible asset“, said Amy Park, an audit partner in Deloitte’s national office for accounting and reporting services who specializes in consolidation, financial instruments and digital assets. “If you think about how some of these companies are using this, they’re looking at this as a form of investment. That may be a little counterintuitive, but in the accounting rules, you have to look at the specific definitions. When you look at the definition of a cash equivalent, or inventory, or financial instruments per se, the accounting definitions don’t really line up with what Bitcoin is. It really falls into this intangible model”.

Our expert, business coach and coach of millionaires Sergey Savich also gave his comments on this matter:

“From my point of view, the main problem why large and small companies do not invest in bitcoin, is that it is not legally spelled out anywhere on how to reflect this in the company’s accounting. They, perhaps, would do it with pleasure, but they are afraid of the consequences if they are incorrectly reflected in the accounting department. And so, it is already impossible to deny this trend. Many companies are now looking closely and, in places where it is permitted by law, are beginning to transfer part of their balance to cryptoassets. First of all, these are Bitcoins and Ether”.

Photo: Sergey Savich

“In some countries, like Russia, it is still legally prohibited for companies to put assets in cryptocurrency on the balance sheet, it is forbidden to sell and buy something for crypto assets. As soon as some solutions are found, or the first pioneers follow the path of creating such assets and from a documentary point of view it will be clear to the market, then I think that a boom in asset creation and the transfer of some assets to the cryptocurrency market will just start“, – Sergey Savich also noticed.

As you can see, all experts agree in their opinions: the risks and tax systems of various countries are not completely suitable for a full-fledged operation with cryptocurrency.

At the end of February 2021, MicroStrategy CEO Michael Saylor announced that from now on the company will focus on two areas – the development of its analytical software enterprise and the purchase of Bitcoins. “The Company remains focused on our two corporate strategies of growing our enterprise analytics software business and acquiring and holding bitcoin”, he said.

These words were spoken right after MicroStrategy increased its Bitcoin holdings by 27% after purchasing an additional 19,452 coins, taking its total haul to 90,531 BTC. MicroStrategy’s first investment in Bitcoin was made in the summer of 2020 when the company announced a $250 million purchase of Bitcoins, and the company has since spent over $4 billion on the digital asset. According to Saylor, MicroStrategy has no plans to stop buying Bitcoins anytime soon.

We believe our bitcoin strategy, including our bitcoin holdings and related activities in support of the bitcoin network, is complementary to our software business, by enhancing awareness of our brand and providing opportunities to secure new customers”, – Saylor said.

As the recent news from the cryptocurrency market shows that MicroStrategy’s words do not differ from deeds. On March 12, Michael Saylor announced that the company bought another 262 Bitcoins for $15 million (at $57.14 per coin), which raises the company’s investment in Bitcoin to $2.21 billion – the company’s investment portfolio currently includes 91.33 thousand of digital coins.

All of this makes MicroStrategy the largest cryptocurrency holder among public companies. For the entire time of the company’s investment in Bitcoins, the average price of one purchased coin was $24,210. At current exchange rate, MicroStrategy’s “paper profit” in this field equals $2.9 billion.

Earlier Michael Saylor said in his Twitter that according to his forecasts, in the near future, the value of Bitcoin will reach $500,000, and its capitalization will reach $100 trillion. In his opinion, this cryptocurrency will very soon begin to exert a “stabilizing influence” on the global financial system and will exceed the market capitalization of gold.

And he is far from alone in his assumptions! On March 11, the main Bitcoin-skeptic Peter Schiff, who has repeatedly spoken about the digital currency system itself (as well as about the mental abilities of cryptocurrency investors) in the most unflattering ways, complained that his son had also gone over to the side of the enemy!

According to Schiff, his son Spencer transferred 100% of his investment portfolio to the first cryptocurrency, while selling both gold (which, by the way, Peter is an ardent admirer) and silver. “If my own son is this brainwashed imagine how vulnerable most kids are”, wrote Schiff.

By Alexander Kurikh

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