The Days of Cash Balance Sheets Are Gone
If you’re like most people, you might be struggling to understand the recent rush of corporate bitcoin investment.
Corporate bitcoin holdings have soared in recent months. Only a year ago, few even imagined such a scenario.
What is fueling this new generation of corporate bitcoin buyers? If previous media narratives about bitcoin are to be believed, then we must infer that a bunch of CEOs have been caught up in a “speculative mania,” deciding to go all-in on a veritable digital casino for no apparent reason.
The average CEO is likely to be a wiser, more responsible investor than the average journalist or corporate media hack. If given the choice, I know who I’d look to for investment advice.
The economic rationale driving this corporate and institutional bitcoin buying is rather simple. It stems from something that many in the crypto community have been warning of for quite some time.
Put simply, endless fiat money creation will benefit scarce assets and hard money. Bitcoin is the hardest money humans have ever known with a supply of only 21 million.
The CEOs and institutional money managers of the world have come to realize this reality. Thanks to the money printer going brrr all over the world to a degree never before thought possible, everyone has begun to recognize that their fiat currency might be on borrowed time.
Real Inflation Drives Corporate Bitcoin Purchases – Not CPI
Michael Saylor (hailed as “the high priest of bitcoin” by max Keiser) has said that one of the main factors driving his decision to move his company’s balance sheet into bitcoin is the real rate of inflation.
Asset inflation is running at 10% to 25% annually, as evidenced by sharp increases in the prices of stocks, real estate, and commodities, according to him.
Saylor has described his company’s cash reserves as a “melting ice cube” because fiat currency is slowly but surely losing its purchasing power. Bitcoin offers a solution, being a finite asset with only 21 million BTC to ever be mined into existence.
What Company Owns the Most Bitcoin?
MicroStrategy is the company that owns the most bitcoin by far. The organization owns 91,850 bitcoin, worth about 3.5 billion dollars at the time of writing.
Compared to MicroStrategy, most other companies only have a tiny portion of their assets allocated to bitcoin.
Tesla, the company with the second-largest bitcoin holdings, has less than half as much BTC as MicroStrategy, with 43,200 coins on their balance sheet.
This article from TheStreet.com does a great job of rounding up the top 10 companies that hold bitcoin.
Which is the Best Company to Invest in Bitcoin?
Investors looking for exposure to bitcoin through the stock of a company that holds bitcoin on its balance sheet can choose from any of the small but growing number of corporations that have done so.
MicroStrategy holds the most bitcoin, as mentioned, but any company that holds bitcoin is likely to serve as a sort of proxy bitcoin investment vehicle to an extent.
There’s also the Grayscale Bitcoin Trust (GBTC), which is thought to be a preferred vehicle for many institutional investors. This can be a great way for investors to get exposure to bitcoin in their brokerage accounts. However, there are two potential drawbacks.
GBTC often trades at a premium to its net asset value (NAV), meaning investors pay more for shares than they would for a direct bitcoin purchase. The fund also has a high expense ratio, charging 2% annually. By contrast, the SPY index fund currently has an expense ratio of about 0.1%.
The average person can choose to simply get up to speed and buy some bitcoin. Popular exchanges like Coinbase, Kraken, and Swan Bitcoin all make the process easy for beginners.
Corporate Bitcoin Investment: What’s Next?
The list of corporations investing in bitcoin keeps growing longer. MicroStrategy was the first and Tesla really got the ball rolling.
Some have speculated that hundreds of large corporations have already made the decision to convert some of their balance sheets to bitcoin. If true, we won’t know about it for many months, as it can take a long time for organizations to put these things into action. Agreements have to be made, regulatory hurdles must be overcome, and then there’s the issue of actually acquiring and holding the asset.
Institutional Money in Bitcoin
Institutional investment in bitcoin has a large focus on futures contracts, like those offered by CME Group.
Open interest in bitcoin futures has been rising for quite some time. This indicates that people are interested in holding a futures position for the long-term and not just speculating.
I also had a chance to speak with David Mercer, CEO of LMAX, recently. LMAX is the second-largest cryptocurrency exchange by bitcoin trading volume. You may have never heard of them because they only cater to institutional clients.
David corroborated this narrative of increasing institutional investment in bitcoin. He said that many of his clients are either actively investing in bitcoin or planning to do so at some point in the future.
Corporate bitcoin investment in 2021 is strong and growing. In all likelihood, it could take another 6 – 12 months or more before the majority of companies in the S&P 500 begin adding bitcoin to their balance sheets.
It takes a considerable amount of time for an organization to set in motion actual plans for acquiring bitcoin after making the decision to do so. It’s possible that most or all of these companies have already chosen to allocate some of their cash to bitcoin, but we won’t know that for some time.
Cathie Wood of Ark Investments has said that if all the S&P 500 corporations were to put 10% of their balance sheets into bitcoin, that would add another $400,000 to the price, leading to almost $500,000 per bitcoin. Interestingly, this aligns with Max Keiser’s long-term outlook for the bitcoin price (his near-term projection is $220,000 by November 2021).
What do you think? Will massive corporate bitcoin investment propel the bitcoin price to over six figures this year?