Hot Money Monday: ASX Firms Shift from Term Deposits to Bitcoin
Corporate Treasuries Embrace bitcoin as Inflation Hedge: A Shift in Strategy
Growing Interest in bitcoin Among Corporations
In recent months, an increasing number of corporate treasuries have begun investing in bitcoin as a strategy to mitigate inflation risks. This trend marks a significant departure from traditional financial practices, where executives primarily focused on interest rates and term deposits. Now, many are monitoring bitcoin prices as part of their daily routines.
From major cities like Texas to Tokyo, companies are allocating portions of their balance sheets to bitcoin, often referring to it as digital gold. This shift is largely driven by concerns over central bank policies and the ongoing money-printing environment.
MicroStrategy Leads the Charge
Leading the pack is MicroStrategy, under the leadership of Michael Saylor, which has amassed approximately 592,345 BTC, valued at around $63 billion. This substantial holding surpasses the reserves of several countries, showcasing the growing influence of corporate investments in cryptocurrency.
The rationale behind this investment strategy is straightforward: bitcoin‘s capped supply of 21 million coins positions it as a potential safeguard against inflation and monetary policy fluctuations. Additionally, bitcoin is known for its liquidity and has outperformed many traditional asset classes over the past five years.
Risks and Challenges of bitcoin Investments
However, the volatility associated with bitcoin cannot be overlooked. Price fluctuations exceeding 50% within a single quarter can significantly impact reported earnings. Matthew Sigel, head of digital assets at VanEck, cautions that continuous equity raises to fund bitcoin acquisitions can lead to shareholder dilution, especially when a company’s stock price approaches its net asset value.
When a company’s shares trade near their net asset value, any new equity offerings may not provide the usual benefits to existing shareholders, effectively reducing their ownership stake without increasing the asset base.
Major Corporations Hesitant to Invest
This risk assessment is likely why many prominent tech companies remain cautious about investing in bitcoin. At Meta’s recent annual general meeting, a proposal to allocate a portion of its $72 billion cash reserves to bitcoin was overwhelmingly rejected, with nearly 5 billion votes against it. Similar proposals have been dismissed by other tech giants like Amazon and Microsoft, who cite bitcoin‘s volatility as a conflict with their cash-flow projections.
Smaller Australian Firms Enter the bitcoin Market
In contrast, smaller companies are starting to explore bitcoin investments. Recently, Japan’s Metaplanet surpassed Tesla in bitcoin holdings, acquiring an additional 1,234 BTC to reach a total of 12,345 coins.
In Australia, two smaller firms made headlines last week. Locate Technologies (ASX:LOC), known for its delivery software, raised $239,000 through its market facility and converted most of those funds into 4 BTC at an average price of $156,560 each, bringing its total to over ten coins. Following this move, LOC’s stock price doubled, indicating that investors are responding positively to bold narratives.
Similarly, Opyl (ASX:OPL), a clinical AI company, announced its acquisition of two bitcoin for $330,000 through DigitalX’s ETF. The firm has also secured a $2 million loan against its bitcoin holdings, allowing it to bolster its financial position without diluting shareholder equity. This move reflects a growing belief among smaller firms that holding bitcoin could help manage future costs related to AI infrastructure.
Tony G, a poker champion turned crypto advisor, emphasized the importance of understanding digital assets, noting that increasing institutional and governmental support for bitcoin and other cryptocurrencies is validating their status as a forward-looking asset class. Following Opyl’s announcement, the company’s shares also experienced a surge.
Conclusion
As corporate treasuries navigate the complexities of inflation and market volatility, the trend of investing in bitcoin is gaining traction, particularly among smaller firms. While larger corporations remain hesitant due to the associated risks, the actions of companies like Locate and Opyl suggest a growing acceptance of cryptocurrency as a viable asset class in the corporate world.
