They both followed MicroStrategy, a Nasdaq-listed asset manager, which made known last month that it had accumulated $425 million in Bitcoin, making BTC the principal holding in its treasury reserve strategy.
Three publicly owned companies, three big BTC purchases — it may be mere coincidence. On the other hand, the Federal Reserve’s balance sheet has ballooned by $3 trillion since the beginning of 2019, while the U.S. dollar has depreciated 70% against BTC — as Stone Ridge founder Ross Stevens noted in the firm’s Oct. 13 press release.
BTC: The new reserve asset?
How do the cognoscenti explain it? The U.S. dollar is falling; bond yields are almost non-existent; and gold is underperforming. Liquidity-flush firms have fewer places to put their cash — so they are turning to cryptocurrency. “We are seeing a new trend emerge where corporations are using Bitcoin as a reserve asset for part or majority of their treasury,” pronounced Anthony Pompliano in his Oct. 15 newsletter. Saifedean Ammous, economist and author of The Bitcoin Standard: The Decentralized Alternative to Central Banking, told Cointelegraph: “While I would have expected to see such firms take small positions more as a hedge, it speaks volume to the growing credibility of Bitcoin that as soon as they became intrigued by the value proposition, they chose to go with a large allocation.”
Gold, the traditional safe haven in crisis times, has disappointed recently, and as a result, “Bitcoin has emerged as a favorite diversification play away from bonds and will likely steadily attract new institutional investors,” said Moya. Ammous further added: “There is the short-term concern about devaluation of the dollar in light of the increased amount of government spending and stimulus in response to the corona panic crisis.”
Buried within Stone Ridge’s announcement was a call to banks and philanthropies to likewise make Bitcoin a principal component of their treasury reserve strategies. To that end, Stone Ridge was offering up the services of its New York Digital Investment Group unit, which holds a license from New York State to convert dollars into crypto and back again, along with core custody, financing, and Anti-Money Laundering and Know Your Customer capabilities.
Square has been bullish on Bitcoin for some years now. Its Cash App service enables users to buy and sell Bitcoin, and some analysts believe other payment firms will now have to facilitate crypto investment in some form — or risk being left behind. It hasn’t escaped notice, either, that the younger generation, the Millennials, are especially keen on cryptocurrencies such as Bitcoin.
But apart from payment firms, could institutional investors and/or Fortune 500 companies follow Square’s lead as well? “Yes. This trend has moved from an ‘if’ scenario to a ‘when’ scenario,” according to Paul Cappelli, a portfolio manager at Galaxy Fund Management. Institutional investors, too, will have to find new ways to diversify their portfolios and maximize balance sheet returns. Meanwhile, BTC has risen 50% since the beginning of the year.