Corporate finance executives still balk at Bitcoin

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Bitcoin has become a financial and cultural phenomenon, only existing since 2009. While many people have heard of it, very few understand it. In short, Bitcoin is a cryptocurrency, or digital currency, which enables transactions independent of the banking system. Some see digital currency as revolutionary because it allows people to send funds as easily as emails, even across international borders.

Although Bitcoin was originally developed to function as an alternative to fiat currencies (those to which governments have made legal tender), there has been a noticeable increase in demand from many people purchasing virtual currency purely as an investment. financial, hoping that it will appreciate. rather than using it for a transaction.

In recent times, a growing number of companies and even state-owned companies are interested in Bitcoin. However, not all CFOs who drive the direction and success of these institutions are convinced that they are investing in digital currency as a business asset anytime soon. The executives in charge of a company’s finances normally hold assets deemed to be safe, such as bank deposits or money market funds.

Crypto Exhibition of Public Companies

In August 2020, MicroStrategy grabbed the headlines by becoming the first company to purchase US $ 425 million worth of Bitcoin as a primary reserve to hedge against a possible devaluation of the US dollar.

The move has become an important seal of institutional approval of the leading cryptocurrency’s credentials as a mature and safe-haven asset. It looks like the big global companies are now following MicroStrategy’s Bitcoin strategy.

Large companies such as Square, MassMutual, Marathon Patent, Hut 8 Mining, Voyager Digital, Cypherpunk Holdings, Ruffer and many others have bought large amounts of Bitcoin as a reserve asset.

So far, MicroStrategy and other companies’ decision to invest in Bitcoin appears to have paid off, given the recent record price of the cryptocurrency. The value of their holdings has appreciated considerably, with a return much higher than that of money market funds or short-term bonds, where most companies store their available cash.

Bitcoin intentions pending

According to a new Gartner survey of 77 CFOs, 84% say they have no plans to buy Bitcoin as a corporate reserve anytime soon.

The survey indicated that the top five concerns of CFOs regarding Bitcoin include price volatility, risk aversion on the part of the company’s board of directors, the slow adoption of cryptocurrency as a form of payment, cyber risks and regulatory concerns.

While 50% of tech executives surveyed expect their companies to invest in cryptocurrency at some point in the future, only 5% intend to invest in the digital asset listed. in their company books this year.

“There are a lot of unresolved issues when it comes to using Bitcoin as a business asset. Adoption is unlikely to increase rapidly until we have more clarity on these challenges, ”said Alexander Bant, director of research in the finance practice at Gartner.

“It’s important to remember that this is an emerging phenomenon in the long timeline of corporate assets. Financial leaders charged with ensuring financial stability are not inclined to take speculative leaps into uncharted territory, ”Bant added.

After Tesla invested $ 1.5 billion in Bitcoin as a corporate reserve, PayPal is the latest company to disclose that it will not be investing its cash reserve in cryptocurrency. In an interview with CNBC’s “Mad Money” TV show, PayPal CFO John Rainey said the payments giant had no interest in buying the cryptocurrency as a corporate reserve, but rather preferred to invest in services that are in addition to the platforms offered by the company. .

Bitcoin turbulence

Due to Bitcoin’s notorious volatility, the prospect of digital assets becoming a regular part of corporate cash flow doesn’t look good. CFOs, who as a group are generally averse to risk, are keenly aware that investing company funds in cryptocurrencies could amount to end of career erasure.

This year, bitcoin has traded to new highs – surpassing $ 50,000 – and supporters predict it will continue an astonishing increase that has skyrocketed it by nearly $ 20,000 this year. In mid-January, the price of the major cryptocurrency hit a record high of nearly $ 42,000 in less than a week, before quickly dropping back to nearly $ 30,000, a drop of more than $ 20. %. But now Bitcoin has roared once again to surpass the $ 55,000 mark.

Such drastic changes show just how volatile the cryptocurrency has become and suggest that investors need to hang on to what could be a bumpy road to greater profitability.

Cryptocurrency is also vulnerable to fraud, hackers, and forgotten passwords, although institutional investors use custodial services to minimize these dangers.

The “wait and see” approach to cryptography

As corporate treasurers wait to see what happens to MicroStrategy’s Bitcoin capital reserves, they watch and rack their brains, thinking about other questions the issue raises and how exactly to manage the asset. digital technology and profit from it while reducing exposure to price volatility. .

So far, regulation – or the lack of it – has hampered the widespread adoption of cryptocurrency. Thanks to cross-border currency restrictions, bureaucracy, outdated systems, and little momentum to change the status quo, authorities and institutions are known to be noticeably slow when it comes to technical innovations.

Before institutions can actively promote and adopt a product, they want to understand the financial landscape in which the new asset class operates and the risks associated with it.

In recent weeks, US Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde have called for Bitcoin regulations to tackle money laundering and other illegal activities associated with cryptocurrency.

However, regulation could lay the groundwork for broader acceptance of crypto assets by businesses and individuals, while protecting financial markets. Indeed, regulation could help legitimize crypto assets for businesses, which could spark renewed interest.

What do you think of Bitcoin as a business investment vehicle? Please use the reader comments section to let us know.

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