What are the big companies doing now that invested in Bitcoin?

Author | Chenglin Pua (Malaysia)

2021 is destined to be an extraordinary year. Bitcoin has repeatedly broken new highs and set records since the beginning of 2021, attracting a lot of attention. Among these eyes, many institutions are attracted. The entry of institutions keeps the price of Bitcoin at a high level. The currency circle is also discussing that Bitcoin has finally ushered in the dawn, and the investment of institutions will expand the application of Bitcoin.

Bitcoin price trend in 2021

Source: Coindesk

Number of Bitcoins held by listed companies

Source: Coingecko

Top 20 Public Companies Holding Bitcoin

Source: 01 Blockchain

Microstrategy, All in on Bitcoin

Among all the listed companies holding Bitcoin, Microstrategy is the one holding the most Bitcoin, reaching 108,992 Bitcoins, worth about $2.9 billion. As of press time, Microstrategy's market value is $6.8 billion. It can be said that Bitcoin accounts for half of the company's market value. The "aftermath" of buying a large amount of Bitcoin is that the trend of Microstrategy's stock price is very similar to that of Bitcoin.

Microstrategy stock price trend

Many companies revealed that they bought Bitcoin to diversify their asset allocation and fight inflation; while Michael Saylor, the founder of Microstrategy, seemed to be gambling on the future of the company and himself with Bitcoin, and even borrowed money to buy Bitcoin in the name of the company. On June 8, 2021, according to the Wall Street Journal, MicroStrategy issued $400 million in junk bonds to buy more Bitcoin. On August 25, MicroStrategy again purchased 3,907 Bitcoins for approximately $177 million in cash, with an average price of approximately $45,294 per Bitcoin.

The market is a little confused about MicroStrategy's operation, and everyone is curious about the motivation behind Microstrategy's massive purchase of Bitcoin. In response, founder Saylor said: "If you borrow billions of dollars at an interest rate of 1% and invest it in the next large-scale technology digital network that you think will become the dominant Amazon, Google or Facebook, why wouldn't you?"

For a listed American business intelligence software company, this is a bit "unfocused". According to Microstrategy's financial report, the company spent $1.615 billion in the three months on the cash flow statement, of which only $1.34 million was used to purchase "real assets" such as fixed assets, which means that 99.917% of the money spent was used to buy Bitcoin. Last quarter, it spent $1.086 billion on Bitcoin and $447,000 on fixed assets, which means that 99.96% was used to buy Bitcoin.

Microstrategy's second quarter investment activity

Source: Microstrategy 2021 Q2 Financial Report

These actions also made Microstrategy employees a little unhappy. The company was originally positioned as a business intelligence software company, but now the investment in business intelligence software R&D activities is not even a fraction of the money used to buy Bitcoin. So is it still a business intelligence software company? Does it make profits from business intelligence software or Bitcoin? An employee said on the job search website Glassdoor that "buying Bitcoin is weird, and we employees feel that the company is a bit off the mark."

Microstrategy began buying Bitcoin in July 2020. At the quarterly meeting at the time, Saylor announced that Microstrategy planned to buy Bitcoin, gold and other alternative assets to replace the cash still held on the balance sheet. In August 2020, Microstrategy used $250 million in cash on hand to purchase 21,454 bitcoins. Then, in September and December 2020, the company spent $175 million and $50 million to buy Bitcoin, respectively. A dramatic scene in securities history occurred on December 11, 2020, when Microstrategy issued $650 million in convertible bonds, all of which were used to buy Bitcoin, setting a precedent for listed companies to borrow money to buy Bitcoin. In addition, Microstrategy also became the first listed company to purchase Bitcoin and incorporate it into its capital allocation strategy.

In fact, Saylor was very pessimistic about the development of Bitcoin in the early days, and even tweeted to mock the future of Bitcoin. He once tweeted: "Bitcoin will not be around for a few days. Its end will eventually be the same as online gambling."

Saylor's early tweets

Thaler graduated from the Massachusetts Institute of Technology. His wish when he founded Microstrategy was to build it into a business group like General Motors, which would be passed down from generation to generation. To this end, he repeatedly rejected acquisition requests from others. Microstrategy was once very successful. With its technical advantages in business intelligence analysis software, it successfully landed on the Nasdaq Stock Exchange. Thaler's net worth once reached $7 billion, and he was described by the American elite political magazine "Washingtonian" as "the richest man in Washington, the capital."

In 2020, the epidemic began to sweep across the United States, and the Federal Reserve launched a "large-scale flooding" policy to save the U.S. stock market and economy. In an interview, Saylor revealed that Microstrategy had $500 million in idle cash on its books at the beginning of the epidemic. At that time, Saylor was not interested in Bitcoin. On a rainy day, he looked out the window, looked at the Washington Monument opposite for a while, and asked his subordinates to buy U.S. Treasury bonds. However, it didn't take long for the epidemic in the United States to get out of control and become a country more serious than China and Italy. In order to cope with the economic shock, the Federal Reserve first implemented zero interest rates, and then printed money crazily, which led to a large depreciation of U.S. Treasury bonds purchased by Microstrategy. Saylor said: "From the company's perspective, we must ensure that the return on investment exceeds the depreciation of the US dollar. After thinking about it, only Bitcoin is qualified."

For Microstrategy, buying Bitcoin is to increase its return on investment. The outbreak of the epidemic has brought Microstrategy into contact with Bitcoin. Judging from the current Bitcoin price, Microstrategy is undoubtedly successful.

Tesla, the disruptor of Bitcoin's trend

Elon Musk is undoubtedly the most influential "Internet celebrity" in the world today. One tweet can change the trend of Bitcoin prices. Before Trump's Twitter was blocked, Musk's Twitter influence was probably the second. However, since Trump was banned from Twitter, it is difficult to find another person on Twitter who is "comparable" to Musk in influence.

Musk's influence on Bitcoin price

Source: Coindesk

On February 10, 2021, Tesla announced that it had purchased $1.5 billion worth of Bitcoin and would accept Bitcoin as a means of payment. As soon as the news came out, the price of Bitcoin rose by more than 10%. Tesla's profit in Q1 2021 was $438 million, which means that all of its profit for the year was spent on buying Bitcoin.

In May 2021, Musk tweeted that Tesla had suspended plans to use Bitcoin to buy Teslas due to concerns about climate change. After the tweet, Bitcoin fell more than 10%, and Tesla's stock price also fell. In fact, when Tesla announced its acceptance of cryptocurrencies in March, it was strongly criticized by some environmental groups and investors. Musk also said that Tesla will not sell Bitcoin at present and intends to use it for settlement after mining switches to sustainable energy.

Tesla purchased 46,000 bitcoins in early February this year, at an average price of $32,600. In April this year, Tesla disclosed that it sold 10% of its bitcoins in the first quarter, or about 4,600 bitcoins, at an average price of $59,100. The transaction brought the company $272 million in revenue, allowing Tesla to achieve a pre-tax profit of $101 million in Q1 2021. According to Tesla's 2021 Q2 financial report, Tesla did not sell any bitcoins. At present, Musk has fulfilled his promise that Tesla will not sell bitcoins at present; however, it is hard to say in the future.

Tesla 2021 Q2 Financial Report Overview

At The B Word conference on July 21, Musk said that Tesla's bank deposits in Europe have negative interest rates (i.e., a fee needs to be paid to the bank every once in a while), which will make people reconsider holding Bitcoin. In addition, Musk also revealed that he and SpaceX both hold Bitcoin. Although he is concerned about the impact of Bitcoin on the environment, he generally supports this cryptocurrency.

Square: Will not buy any Bitcoin at this time

American payment giant Square purchased Bitcoin between October 2020 and February 2021. On October 10, 2020, the company purchased 4,709 Bitcoins with a total value of approximately $50 million. At the time, this investment accounted for almost 1% of the company's total assets. On February 24, 2021, Square again bought approximately 3,318 Bitcoins for $170 million, with an average price of $51,200. After the two transactions, the cost price of a single Bitcoin was approximately $27,407.

The company said in a press release that cryptocurrency is a means of economic empowerment and can provide the world with a way to participate in the global monetary system, which is consistent with the company's purpose. Square's Chief Financial Officer Amrita Ahuja said: "Bitcoin has the potential to become a more universal currency in the future. As its utilization continues to grow, we intend to learn and participate in a more compliant way. For a company that is moving towards building more inclusive future products, this investment is a key step on this road."

In fact, as early as 2019, Square established an independent team, Square Crypto, dedicated to contributing to Bitcoin open source work. Square even launched a non-profit organization, the Cryptocurrency Open Patent Alliance (COPA), to encourage crypto innovation and open access to patented crypto products. This series of support for cryptocurrencies has brought rich returns to Square. Square allows consumers to use Cash App (a software launched by Square that specializes in Bitcoin-related transactions) to consume and store Bitcoin. Square's Bitcoin revenue also increased from US$516.5 million in 2019 to US$4.75 billion last year.

Square's Cash App continues to grow

Source: The Block

The news of Square's purchase of Bitcoin also attracted comments from Saylor. Saylor commented on Square's news on Twitter: "Bitcoin is a great reserve asset, and I admire the Square team for leading this trend."

However, as Bitcoin experienced a downturn from April to August, Square's Bitcoin assets began to lose money. On May 15, Square released its 2021 Q1 financial report. After recording a loss of $20 million on related Bitcoin investments, Chief Financial Officer Amrita Ahuja said that Square currently has no plans to purchase further Bitcoin. In addition, he also mentioned the carbon footprint of the Bitcoin network, saying that this needs to be resolved in the future.

Ahuja said Square's bitcoin holdings rose to $472 million, but the company recorded a $20 million loss on its bitcoin investment at the time of the earnings report. The $220 million used to buy bitcoin accounted for 5% of the company's cash balance.

Bitcoin still has high volatility. Although its overall rate of return is very impressive, its "roller coaster" price trend is not what market investors like to see, which will affect Square's stock price. The unpredictable trend of Bitcoin makes Square's overall market value difficult to predict. In addition, Square is still in a stage of rapid development. The losses caused by buying Bitcoin are unbearable for Square. This also led to Square's statement at the earnings conference that it had no plans to buy further Bitcoin after recording losses.

Buying Bitcoin from Coinbase, a strategy that kills three birds with one stone

Coinbase is the world's second largest cryptocurrency exchange and the world's largest listed cryptocurrency exchange. At press time, Coinbase's market value reached $54 billion.

Coinbase stock price trend

Coinbase was established in 2012 and is the first cryptocurrency exchange in the United States to hold a formal license. It was founded by former Airbnb engineer Brian Armtrong. In 2010, Armstrong accidentally read a Bitcoin white paper, which opened the door to cryptocurrency. In order to study it more deeply, he bought more than 1,000 Bitcoins at a price of $9. When the price of Bitcoin fell to $2, Armstrong was not scared away and kept writing code to buy and store Bitcoin. In the summer of two years later, Armstrong developed a wallet on his own, which is Coinbase. Since then, he has continued to develop Coinbase and successfully listed it in 2021.

On August 20, 2021, Coinbase revealed that it would purchase $500 million worth of cryptocurrencies and plans to invest 10% of all profits in digital assets in the future. Coinbase CEO Brian Armstrong said that over time, the company hopes to increase the proportion of profits used to purchase cryptocurrencies. The company also emphasized its commitment to long-term investment in the crypto industry, saying that future investments may be determined based on customer holdings.

Coinbase will buy and sell cryptocurrencies through third-party platforms or over-the-counter trading platforms to avoid conflicts of interest with its customers. In addition, Coinbase also announced that it has accumulated a $4 billion fund to prepare for regulation and the next "crypto winter."

Coinbase's profits mainly come from cryptocurrency transactions. The more transactions, the more revenue Coinbase will generate. Whether the market is rising or falling, Coinbase can benefit from it. Buying cryptocurrencies can further increase the market value of cryptocurrencies. In addition to being able to hedge against risks, cryptocurrencies also have the potential to appreciate. Finally, the most important thing for Coinbase is to indirectly promote revenue growth. Buying cryptocurrencies is a three-birds-with-one-stone move for Coinbase.

Beautiful pictures copied at high positions

On March 7, 2021, Meitu, the parent company of Meitu XiuXiu, a Hong Kong-listed company, announced that it had purchased 15,000 Ethereum and 379 Bitcoin in open market transactions, with a total consideration of approximately US$22.1 million and US$17.9 million, respectively, totaling US$40 million (equivalent to approximately RMB 260 million at the time). In response to this news, the next morning on March 8, Meitu's stock price opened 14% higher.

In addition, on March 17, its wholly-owned subsidiary Miracle Vision further purchased 16,000 Ethereum and approximately 386 Bitcoins in open market transactions, with a total consideration of US$28.4 million and US$21.6 million, respectively, totaling US$50 million.

Cai Wensheng, chairman of Meitu, said in a WeChat Moments post at the time that Meitu would continue to develop blockchain. Cai Wensheng said: "Someone has to be the first to try it. This should be considered the first Hong Kong listed company to purchase digital currency, and also the first listed company in the world to use Ethereum as a digital asset reserve."

On April 8, Meitu issued another announcement stating that the company once again purchased approximately 175.7 bitcoins in open market transactions, with a total consideration of approximately US$10 million. Through the above three investments, Meitu currently holds more than 940 bitcoins, with an average purchase price of approximately US$52,610, and also holds 31,000 ethers, with an average purchase price of approximately US$1,629. So far, Meitu's total investment in cryptocurrencies has reached US$100 million.

However, the previous "halving" of the cryptocurrency market has made people question Meitu's investment in cryptocurrency. Some netizens joked that Tesla bought 30,000 yuan, while Meitu bought 50,000 yuan. The plunge in the cryptocurrency market also caused Meitu's stock price to plummet. As of the close of August 27, Meitu's stock price was HK$1.74, a 57.66% drop from its highest point this year.

Meitu stock price trend

Although the cryptocurrency market is gradually recovering, Meitu can be said to have bought Bitcoin at its peak. The market does not approve of its "coin buying" behavior, and the stock price reflects this well. For Bitcoin, even if its losses are narrowing and it will gradually rise in the future, the high opening cost will greatly compress Meitu's return on investment.

Why are listed companies so fond of Bitcoin?

For most listed companies that invest in Bitcoin, the pursuit of wealth growth and the fear of inflation and asset shrinkage are both significant motivations. With the continuous participation of institutions, Bitcoin as an asset has become more mature and safe among Bitcoin supporters. Looking at other investment methods on the market, no matter how prosperous the investment targets are, they seem to be unable to compare with the strong rise of Bitcoin.

The desire for wealth growth has driven listed companies to buy Bitcoin. JPMorgan Chase released a report in January saying that Bitcoin is becoming a competitor to gold. Once Bitcoin becomes a recognized safe haven in the market, it will attract as much money as investing in gold. In theory, the price of Bitcoin may reach $146,000.

Ark Fund, which specializes in investing in disruptive technologies, is even more radical, calling out a target price of $400,000. Ark Fund believes that if all companies in the S&P 500 invest 10% of their cash in Bitcoin, the price of one Bitcoin will reach $400,000.

Ark Fund's target price for Bitcoin

Source: Ark Fund

Square also explained when it bought Bitcoin: Square believes that cryptocurrency is a means to enhance economic strength, and cryptocurrency provides a way to participate in the global monetary system, which is consistent with Square's purpose. Saylor explained the logic behind his large purchase of Bitcoin: "Before choosing Bitcoin investment, I had considered investing our assets in ordinary currencies, bonds, stocks, index funds, options, real estate, precious metals, art, etc., but after comparing them, Bitcoin still looks like a better long-term investment asset."

As the overall economic environment deteriorates, the government continues to print money and issue bonds, resulting in zero or even negative returns on traditional assets such as government bonds in recent years. Such poor returns have driven investors to actively seek new investment alternatives. More and more investors are using Bitcoin as a hedge against inflation risks and cash depreciation.