(Bloomberg) – Tesla’s $ 1.5 billion (NASDAQ 🙂 Inc. purchase may have put cryptocurrency on the agenda of corporate treasurers around the world.
While crypto cronies have been saying for some time that business adoption is imminent, in reality it was limited to companies like MicroStrategy Inc. and Square Inc (NYSE :). The involvement of Tesla – the fourth largest company in the world and run by the richest man in the world – brings the discussion to the big leagues.
“We see fundamental reasons for companies’ crypto cash exposure and we wait for others to follow suit,” Fundstrat Global Advisors strategists, including David Grider, wrote on Monday, citing increased payment acceptance and the threat. disruption of the blockchain. “We don’t think this will happen overnight, but we believe there is much more room for corporate cash flow penetration and we expect the trend to continue.”
Bitcoin hit a new high above $ 47,000 on Tuesday after Tesla signaled plans to start accepting cryptocurrency as a payment method. It quadrupled last year and is up 60% so far this year thanks to backing from top investors like Paul Tudor Jones and companies like PayPal Holdings Inc (NASDAQ :).
Yet while Tesla’s $ 1.5 billion investment represents about 8% of its remaining cash reserves, it is a drop in the ocean from the holdings of blue chip US companies. The purchase is only worth 0.05% of the $ 2.79 trillion in cash and cash equivalents held on the balance sheets of S&P 500 members, according to data compiled by Bloomberg.
For treasurers, the asset class is just too risky, according to James Angel, associate professor at Georgetown University. There is no compelling business case for Tesla, or any other company, to speculate on Bitcoin, he said in email comments.
“Corporate cash managers are generally fairly cautious and invest corporate cash balances in safe liquid assets,” Angel said. “Bitcoin is very volatile and can easily go up or down 10% in a day or 50% in a year – certainly not a good store of short-term value.”
And although Tesla has announced its intention to accept Bitcoin for purchases, hardly anyone uses cryptocurrency for anything other than speculation. Data from New York-based blockchain researcher Chainalysis Inc. showed that only 1.3% of economic transactions came from traders in the first four months of 2019.
Others disagree and stress the growing interest from the corporate world. Michael Saylor, CEO of MicroStrategy, hosted a seminar on business adoption last week and said in advance that professionals from more than 1,400 companies were expected.
“Bitcoin as a corporate treasury asset is not yet a common business strategy, but companies like MicroStrategy and now Tesla are very visible advocates,” said Seamus Donoghue, vice president of sales and development sales representative of digital infrastructure provider Metaco. “With such voice sponsors leading enterprise adoption, further adoption will follow much faster than currently expected.”
Some industries may adopt Bitcoin faster than others, with tech and financial firms likely to be more open to the idea of digital currencies, according to Fundstrat.
“I wouldn’t be surprised to have an announcement from some of the tech giants Facebook (NASDAQ 🙂 or Google (NASDAQ 🙂 in the year,” said Amber Ghaddar, founder of fintech AllianceBlock. “But I think there is still a long way to go for more traditional treasurers.”
© 2021 Bloomberg L.P.