There have been many, what should have been, price moving events in the crypto sphere last week. Whether it be the ban on crypto derivatives by UK govt authorities, or US govt authorities going after Bitmex (and the resignation of Arthur Hayes subsequently). In the bear market times, these would have been good reasons for a sell-off. However, the picture is very different this time.
Bitcoin has been range-bound during the last few months and has been trading in the 10k-11k range. One can say that for a volatile asset, there is been 0 impact of all the news events mentioned above.
However, yesterday something big happened. But before we get into that let us look at the price movement.
The NEWS -
Jack Dorsey also came out on twitter and shared a link as to how Square did the acquisition of ~4.7k bitcoin. Prior, to this, a firm called Microstrategy had already invested in bitcoin as part of its cash management strategy.
Now, the amount invested is not huge. In fact, $50 million amounts to about 1% of Square's total assets. What is interesting about this is that it the second corporate treasury to buy bitcoin and the news got everyone excited about the hope that many more would follow.
I am a bit apprehensive and less excited. Jack Dorsey has been a bitcoin fan for ages now. So Square not being the first firm to buy bitcoin is a bit weird. More companies where top management believes in the bitcoin thesis should do what Microstrategy and Square have done - HODL. In fact, Twitter Inc. should be next.
Do I think that bitcoin is a great treasury asset? In the long run, yes. Most treasuries are all about cash management and asset-liability mismatch. They either raise liabilities to fund the company or invest idle cash to ensure that inflation doesn't erode the value of their cash pile. Long term investments are not and should be part of the treasury mandate. Bitcoin is extremely volatile and therefore it is obvious that only a small amount of money has been used to purchase the cryptocurrency. If, in the next one year, bitcoin stays above 10.5k, Square team would not have done badly. Especially if one considers the alternatives - US money markets. The alternative is yielding so little that investing in bitcoin makes sense. Also even if bitcoin falls 50%, then 25 million MTM on cash can be digested by most large companies without raising concerns from shareholders.
Do I think that a lot more companies will now begin to look favourably at bitcoin? I don't think so. Facebook, Google, Microsoft, they are all aware of bitcoin. Most tech companies are. Facebook even went to the extent of creating their own version of a cryptocurrency. However, I do not think that 2 firms buying bitcoin will have any impact whatsoever on the thinking of big or small tech firms, forget about banks and then forget about companies operating in other industries. Bitcoin is understood so little by so many people and the adoption rate is still too low. It will take years before people pay attention to bitcoin, as much attention as is needed for corporate treasuries to think about it as an alternate to money market instruments.
Even after 10 years, most in finance do not want to invest in bitcoin. An average person has heard about bitcoin but probably does not care enough to bother to learn about it more, forget investing. Corporate treasurers are similar. They are not tech-savvy or proprietary traders who will know how to read charts or do fundamental analysis and invest. They are like your average person. Any adoption of Bitcoin from them is still years away.
What are your thoughts? Let me know in comments below.