Corporations with a high net-worth and their successful CEOs have long been role models for smaller companies. MicroStrategy’s Michael Saylor emerged last year as a shining star in the cryptocurrency space.
Saylor, the founder and CEO of MicroStrategy, a large business intelligence company, invested a significant part of the company’s treasury into Bitcoin. He is now one of the most famous crypto advocates who sees Bitcoin as a winning investment asset where one can expect to double their wealth every year for the next three years.
On Wall Street, giant companies like Tesla (NASDAQ:TSLA), and even cities made Bitcoin a part of their treasury reserves. Yet, since all these role models play on the institutional level, the question remains – can their investment strategies resonate with smaller investors?
DailyCoin spoke to several crypto-friendly small or medium enterprises (SME) worldwide to find their opinion on shifting the company’s cash reserves to Bitcoin.
Big Companies, Huge Investments
Last year MicroStrategy spent $800 million on Bitcoin. This February, the company poured in an additional $1 billion, meaning that Microstrategy (NASDAQ:MSTR) is now the owner of over 90,000 Bitcoins.
According to Michael Saylor, the diversification of corporate treasury and shift towards Bitcoin was exacerbated by the global pandemic. Holding large amounts of cash in corporate accounts became risky as money lost its purchasing power at an accelerated rate. Saylor says Bitcoin is the “most scarce” asset available, and investing in it could be the only path to economic security.
His firm is one of the world’s largest business intelligence companies, with total assets worth $1.466 billion in 2020. These assets represent resources owned by the company that can increase through capital gain. According to Bloomberg, the company’s Bitcoin holdings were worth more than $5 billion after eight months from the first investment.
MicroStrategy chose a radical investment strategy but is not alone in the billion dollar Bitcoin club. Electric car giant Tesla invested $1.5 billion (from its $19 billion reserves) into Bitcoin in February to diversify the firms’ investment portfolio and “maximize returns on cash.” The company has made around $1 billion in profits from its investment since.
Bitcoins’ popularity and its adoption as a reserve asset increased during the global pandemic and monetary expansion. Investors in the United States see BTC as the fourth most attractive investment option in 2021.
Multiple private and publicly listed companies adopted it as a reserve asset. But despite the moves of big capital, smaller companies are much more reserved on following their path.
Smaller Companies Remain Cautious
High volatility
Bitcoin’s volatility is the key reason why smaller businesses are not on the same path as Tesla or MicroStrategy. High price fluctuations create a high level of risk that medium-size and smaller businesses are not ready to take.
“Loads of small companies or start-ups are not investing or accepting Bitcoin because they are afraid to lose,” says Razvan Balint, the director of the UK-based taxi service company HexCars. His company accepts Bitcoin payments, and Mr. Balint calls himself a successful crypto investor who has already been in the game for a couple of years.
The world’s leading crypto has been notorious for its sharp price fluctuations. In the past 12 months, Bitcoin grew by more than 1000%, from below $5,000 in March 2020 to the new historic highs of $61,711.87 a year later.
“Digital currencies are fickle assets and nobody wants to risk closing his business because of it,” agrees Louis de Bonnecaze, the sales director at BTC Wine. A fine wine merchant firm from Bordeaux in France sells luxury wine and focuses on cryptocurrency payments, with the majority of its clients opting to follow suit.
“People need to be very careful when they consider digital currencies as an investment option, especially during euphoric times,” he says, highlighting the high level of risk in the short and medium-term. “However, over a long-term perspective, there are reasons to believe cryptos are a great option to diversify investment portfolios.”
According to Louis de Bonnecaze, Tesla and Microstrategy have room to maneuver. Meanwhile, smaller companies and individual investors should only invest what they are willing to lose.
Not market makers
“Using Bitcoin as a hedge has done very well for Wall Street funds and large companies like Tesla because Bitcoin is on an upwards trend,” believes Dan Alper, the digital marketing and brand development director at the Canadian web design and marketing agency RankWorks.
During an interview with DailyCoin, he noted that large companies and funds are the market movers, and can change the direction in price with every sizable trade they make.
“However, if this trend reverses its course and there is a decline in the value of Bitcoin that lasts for a 12 month period or longer, many of these funds and companies will change their hedging strategies,” said Mr. Alper, whose company jumped onto the Bitcoin bandwagon this year by accepting Bitcoin payments.
If governments worldwide continue to print too much cheap money and countries take enormous amounts of debt then Bitcoin, with limited amounts being mined, will have a strong future. Mr. Alper believes that it may even hit the million dollars per coin shortly, as Chamath Palihapitiya predicted.
“Therefore, smaller companies should invest a limited portion of their holdings into Bitcoin, but I would implore that they should consider Bitcoin as currency and use it to trade in goods and services,” he added.
Education & regulatory issues
The lack of general education about digital currencies may be another reason preventing their wider adoption. “People are skeptical about digital money because of the simple fact that they are digital,” stated Razvan Balint.
He addressed skeptics with laughter and retorted with the example of conventional currencies which cannot be physically seen or touched when in the bank account. However, there may exist a deeper lack of clarity surrounding cryptocurrencies.
“As an investment option, digital currencies are still in the early stages of becoming mainstream and a medium of exchange for goods and services,” said Mr. Alper.
Alper believes there is plenty of room for the value of digital coins to grow. However, the evolution into a widely accepted asset class requires rules and regulations that govern the trade and taxation of digital currencies. “This will make investing in digital currencies a lot safer and will attract more institutional investors, which will then increase the value of digital currencies,” he said.
BTC Wine representative Louis de Bonnecaze sees the benefits of using Bitcoin in international businesses; “Bitcoin is safe, secure, fast and convenient” he stated. However, he noted that while investing a company’s reserves into crypto seems like a great idea on paper, it has to deal with the realities of market volatility and an immature ecosystem. “We still need to pay our suppliers”, he said, “and they don’t accept cryptos yet.”
The increased institutional interest has perpetuated the general narrative of Bitcoin as a store of value. Meanwhile, smaller companies worldwide maintain their own reasons to remain cautious and support more reserved crypto investment strategies than Tesla or MicroStrategy.
