In February this year, electric car manufacturer Tesla made headlines when it announced that it had purchased $1.5 billion worth of Bitcoin (BTC) and would shortly begin accepting Bitcoin as payment on a limited basis.
At the time, industry experts lined up to question the wisdom - or madness - of the decision, with one commentator openly declaring it a "publicity stunt". Another publication did not see the humour in Elon Musk’s future-forward approach to his business calling it a "dangerous bet" that endangered the company and those who would follow in his lead.
Contrary to the predictions of doom and gloom, the move is proving to be a masterstroke for Musk and his company with recent reports postulating that Tesla has netted more than $1.2 billion from its BTC investment. This would mean that the company has earned nearly twice as much from its gamble on Bitcoin as it did for the entire year of 2020 where it reported profits of $721 million.
Showboating or Necessary Action?
Musk has been a vocal supporter of cryptocurrencies, taking to social media and even waxing lyrical in interviews about his belief in the burgeoning technology and what it means for the future of finance.
Detractors of Musk have called the investment in Bitcoin a risky bit of showmanship, however, the company had declared its intent to diversify its cash holdings and investment as part of their US Securities and Exchange Commission (SEC) filings.
The filing they submitted for review spoke of their desire to maximise the value of their holdings saying:
“We may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future."
It is also important to view the investment as a percentage of their value, rather than simply looking at the dollar value. At $1.5 billion, their investment in Bitcoin only represented a 7.7% divestiture of their $19 billion asset pool.
A position they made clear in their SEC filing stating that they were updating their investment policy to allow for flexibility on “cash that is not required to maintain adequate operating liquidity”. In layman’s terms, Tesla checked under the couch cushions and invested the change they found there.
Big Business Boards the Gravy Train
While Tesla is one of the more recognisable names to get involved with Bitcoin, and certainly one of the most aggressive in terms of investment size, they are by no means the first. Over the past few years several well-regarded companies have shifted a portion of their investment portfolio into crypto.
Wealth management company Morgan Stanley has shrugged of its stuffy demeanour in favour of embracing Bitcoin. A recent internal memo indicated that the company is planning to provide access to funds that will allow investors to purchase BTC. The bank took this decision after high profile clients petitioned for access to the token.
However, this option is not for everyone; only clients who have at least $2 million in assets with the bank will be eligible to access the new Bitcoin fund.
Morgan Stanley has also laid out certain minimum investment conditions which include having an account that is at least six months old, as well as limiting bitcoin investments to a maximum of 2.5% of a client’s total net worth.
E-commerce firm Square Inc. is firmly on the Bitcoin bandwagon. In October last year, the Jack Dorsey-owned enterprise committed $50 million to Bitcoin, a financial outlay that represents about 1% of Square’s total assets.
At the tokens current value, the investment is currently worth around $200 million – a fantastic 6 month return on investment by anyone standards.
Amrita Ahuja, the group’s Chief Financial Officer, said:
“We believe that bitcoin has the potential to be a more ubiquitous currency in the future … As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”
This is not the company’s first foray into the crypto space. In 2018, Square launched Bitcoin trading via its mobile payments service, Cash App. Two years later, Square announced that Cash App’s crypto revenue had surged by an astronomical 600%. Following this success, the company formed Square Crypto, an independent company that focused on Bitcoin open-sourced work.
Grayscale Investments is rightly considered a frontrunner when it comes to corporate Bitcoin investments. Through its Bitcoin Trust Fund, the firm currently manages more than 656,166 BTC. This amounts to almost 3.1% of the total BTC currently in circulation on the blockchain.
With the cryptocurrencies sharp increase in price the company's BTC holdings are valued at more than $35 billion, giving it the largest bitcoin portfolio of any institutional investment platform in the world.
Digital asset management firm CoinShares is another UK-based, publicly-traded organisation with substantial Bitcoin holdings. The company is noted for being the first to launch a regulated BTC hedge fund as well as an exchange-traded Bitcoin product.
CoinShares CEO Jean-Marie Mognetti summed up their attitude toward Bitcoin when she clarified that it was no longer a risk to invest in Bitcoin, rather investment houses now see not allocating funds to Bitcoin as the risky play. This is a massive about-face for the traditional investment houses who only a few years ago considered Bitcoin and its ilk a passing fad.
As of February 2021, CoinShares Group held a little under 70 000 BTC which is valued at approximately $3.2 billion.
Nasdaq-listed MicroStrategy specialises in developing mobile software and providing cloud-based services. It is also the owner of more than 71,000 BTC, currently valued at more than $3 billion.
Back in September 2020, MicroStrategy made headlines when it bought $425 million worth of BTC. At the time, CEO Michael Saylor stated:
“This investment reflects our belief that bitcoin, as the world’s most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.”
This crypto treasure trove ensures that MicroStrategy holds the largest number of BTC by a publicly traded organisation. The company has officially adopted Bitcoin as its primary reserve asset due to its “compelling returns”.
✓Ruffer Investment Company
UK-based asset management firm Ruffer Investment Company has decided to dip its toes into the Bitcoin pool. Late last year, the company diverted a fraction of its Multi-Strategies Fund into crypto, purchasing 45,000 Bitcoin.
Ruffer views this investment as an “insurance policy against the continuing devaluation of the world’s major currencies”. Their investors are praising this bullish policy as the $870 million the firm invested in BTC is currently worth a little over $2 billion!
✓Galaxy Digital Holdings
Galaxy Digital Holdings is an investment and asset management company which owns an astounding number of Bitcoin in its own rights. The company was founded in 2018 by former Wall Street icon Michael Novogratz specifically to cater to the needs of investors looking to get into the digital asset, cryptocurrency, and blockchain sectors.
An early BTC adopter Galaxy currently holds 16,400 BTC with a resale value of more than $770 million.
How Big Can This Bubble Get?
Regardless of origin, core service or origin the one trait all of these company’s share is their reason for investing in Bitcoin - they see the cryptocurrency as an effective buffer against the continuing devaluing of fiat currencies around the globe. Only time will tell if their fears prove to be founded or if the current cryptocurrency bull market becomes this generations dotcom bubble.