Bitcoin has made headlines in recent weeks, with some companies making high-profile investments in the cryptocurrency – so could this be a route worth exploring for typical treasury teams?
In January, the UK’s FCA warned consumers that if they invest in cryptoassets, “they should be prepared to lose all their money” – and indeed, the world’s first cryptocurrency, which was first developed in 2008-2009, is nothing if not volatile. Nevertheless, the recent surge in the price of bitcoin has regularly been making headlines since the beginning of 2021. The price of bitcoin was less than US$6,000 in March 2020, but in February 2021 it reached an all-time high of US$58,000.
Interest in the digital currency has been fuelled by news that carmaker Tesla had purchased bitcoin worth US$1.5bn for “more flexibility to further diversify and maximise returns on our cash” and that the company was planning to start accepting payments in bitcoin, albeit on a limited basis in the first instance.
Tesla is not the only company to set its sights on bitcoin. PayPal and Square have both embraced digital currencies in recent months, while business intelligence company MicroStrategy has accumulated over 91,000 bitcoins. In a press release, CEO Michael J. Saylor cited “our belief that bitcoin, as the world’s most widely-adopted cryptocurrency, can serve as a dependable store of value.”
Currency or asset?
A previous Treasury Today article explained the opportunities that bitcoin can potentially offer treasury teams, from diversification to hedging against inflation. But for companies that do take the plunge, it’s clear that the risks can be considerable. Indeed, Tesla’s share price suffered steep falls as the price of bitcoin fell by 25% in the space of a few days – a decline that followed a tweet by CEO Elon Musk noting that the prices of bitcoin and fellow cryptocurrency ethereum did “seem high”. Nevertheless, MicroStrategy has not been deterred from spending another US$10m on bitcoin in recent days.
Could other treasurers be tempted to venture down this road? Francois Masquelier, Chairman of the Luxembourg Corporate Treasury Association (ATEL), Vice-Chairman of the European Association of Corporate Treasurers (EACT) and CEO of Simply Treasury, is sceptical. “It was interesting to see some major companies investing in bitcoin – but to me bitcoin is not a currency; it’s a highly volatile virtual asset,” he says. “I don’t believe that bitcoin will be an asset that typical corporate treasurers in typical companies will adopt.”
Masquelier points out that in today’s world of negative and low interest rates, there are plenty of reasons for CFOs to consider how best to use their surplus cash in order to avoid destroying value. “But it’s already so difficult to sell the idea of going outside of the money market and deposit landscape,” he adds. “I don’t see CFOs investing in virtual currencies.”
Accelerating development
Chris Skinner, industry commentator and author, has a different view. “When you see MicroStrategy moving treasury reserves into bitcoin, and then followed by the likes of Square, Mode and Tesla, what you are seeing is leading technology firms believing that a core part of their asset strategy is the inclusion of cryptocurrency and, particularly, bitcoin,” he says.
Skinner points out that other recent developments include news that BNY Mellon is forming a new digital assets unit that the bank says “will accelerate the development of solutions and capabilities to help clients address growing and evolving needs related to the growth of digital assets, including cryptocurrencies.” Goldman Sachs has also reportedly restarted its cryptocurrency trading desk.
As Skinner concludes, “It’s time to take these things seriously, folks.”
