Bitcoin finance companies are trending. Here’s why
Investors looking to join Crypto have several options. The easiest thing to do is go out and buy from a replacement like Coinbase Or Binance. This method is fast, cheap, easy and easy to hold Bitcoin or Ethereum (or various other coins) directly. Another option is the bank’s shot approach. He bought shares at a company that is being filmed on a bank, and has codes on its balance sheet, and hopes stocks will rise.
Surprisingly, this second approach is currently one of the hottest deals in Crypto, requiring dozens of companies to take part in the action. According to the site called Bitcoin TreasuresCurrently, there are 160 companies around the world, and have Bitcoin turned on balance sheets that include 90 in the US alone. They contain familiar names GameStop, block and Tesla Similarly Trump Media and Technology Groupcontrolled by the president’s family.
In theory, this transaction doesn’t make much sense. Certainly, the value of a company’s assets can help inform stock prices, but changes in the prices of those assets should be directly correlated.
if Nike For some reason, you decide to use spare cash to buy 1 million bushels of corn, and the price of the corn will rise, and its stock may rise to the same extent. However, this does not mean that corn investors need to buy Nike stocks rather than corn. And, if any, Nike shareholders could punish the company for using their capital on something that has nothing to do with the business.
For some reason, the ciphers are different. Companies that have accumulated crypto on their balance sheets have seen stock prices jumps far from the value of the crypto they added.
The most well-known example is strategy. Previously It is known as MicroStrategy, a former Virginia-based observation cybersecurity company. A few years ago, the company’s charismatic founder Michael Sayler It focused on acquiring Bitcoin from its core business, and today it owns an eye-opening stash worth around $74 billion. This pivot It proved to be a huge success, and as of late July, the company’s market capitalization was $112 billion despite the cyberbusiness being completely removed.
It’s no wonder that more CEOs are shining on the same tactics. After all, why would you be able to achieve a big spike in the company’s stock price simply by swapping the currency on the balance sheet for another currency? To understand how popular the tactics are, here are screenshots from the Bitcoin Treasury list of public companies with the most Bitcoin (currently, one Bitcoin is worth around $118,000):
“Meme Effect”
Some of these companies were founded to invest solely in Bitcoin, but many of them are operating companies whose core business includes something else. Mitchell Petersen, a professor of finance at Northwestern University, compared the phenomenon to the 2000 internet stock bubble and discovered that companies can raise stock prices simply by adding “Dotcom” to their names.
However, Petersen is skeptical of the current trend of companies putting spare cash into encryption. He points out that he likes big companies. apple and Microsoft Invest cash as part of your corporate finance business. But that is what we do as part of a broader liquidity strategy. That strategy includes holding short-term assets such as money market funds and corporate bonds to earn a little extra yield while also maintaining the rainy day fund for emergencies and opportunistic acquisitions.
Petersen added that the reporting rules do not require companies to disclose details of “cash equivalents” in their financial statements, but that these are almost always made up of secure, liquid assets. The only exception he can recall is that he was a mining company that occasionally used cash to place molds on the balance sheet, justifying the move by asserting special expertise in the direction of gold prices.
This same reasoning can be found in some companies above. Specifically, it is a company that is engaged in Bitcoin mining and is well versed in the circular pattern of the crypto industry. Some investors may view it as worth paying a premium on the stock price.
However, for other publicly traded companies, it is difficult to see compelling reasons to believe that Bitcoin purchases are based on certain expertise. At the same time, the volatile nature of the crypto market means that many of these companies are in a tough place during an inevitable recession.
This raises the question of whether the current trends in public companies purchasing Crypto are sustainable. According to another corporate finance expert, the answer is simple. It’s not sustainable.
“This is a memetic effect that has nothing to do with investment skills or good corporate strategy,” says Darrell Duffy, a professor of finance at Stanford University.
Duffy holds the view that companies need to use the capital to invest in core competence, rather than trying to compete with hedge funds in speculative theatre. He acknowledges that the company’s stock prices are working very well in the case of Michael Saylor’s strategy, but says the market will ultimately come to that feeling as more companies try to use a copycat approach.
“It’s a trend, and it’s gone and someday other trends will replace it,” Duffy said.