Why Major Corporations are Investing in Bitcoin
Despite the major economic downturn we faced throughout the last year, 2020 was the most successful year for the digital currency economy. The flare of cryptocurrencies keeps growing in 2021 as more retail and institutional investors hook themselves to the world of cryptocurrency. We can say that the rising adoption of cryptocurrencies is now more evident than ever.
The involvement of corporate giants has undoubtedly played a pivotal role in taking the enthusiasm around cryptos to greater heights. It has altogether widened the scope for the adoption of cryptocurrencies.
Major crypto-inclined corporations such as Grayscale, CoinShares, and 3iQ have billions of dollars worth of Bitcoin as assets undermanagement. In this article, we want to explore why private, public, and government non-crypto corporations have stepped up their crypto game by either allocating huge sums to Bitcoin or offering crypto services.
Major Corporations Involved in Crypto
Through 2020 and in 2021, many major non-crypto firms have adopted Bitcoin as one of their reserve assets or have started offering cryptocurrency services. Let’s take a brief look at them.
Tesla: Tesla founder and CEO, Elon Musk, had long flirted with Bitcoin and Dogecoin over his ever-so-favourite pass time of sharing controversial tweets. It was only in January 2021 that Tesla finally stepped into the crypto game after Elon Musk brainstormed the potential of Bitcoin over a Twitter discussion. The electric car manufacturer invested 7.7% of its $19.384 billion cash holdings in Bitcoin. That amounts to over $1.5 billion. Tesla has also announced that it will start accepting Bitcoin payments from its customers.
Microstrategy: Michael Saylor, the CEO of the business intelligence firm Microstrategy, was one of the many people who criticized Bitcoin in its early days. But over time, his opinion has taken a U-turn. Microstrategy has made a series of investments in Bitcoin and currently holds 71,079 BTC worth over $3 billion. The CEO himself personally owns 17,732 BTC worth over $830 million.
Square: Square is a financial services company founded by Jack Dorsey, the founder of Twitter and a crypto proponent. The company made its first crypto investment by allocating $50 million to Bitcoin. In the last week of February, Square poured another $170 million and purchased 3,318 Bitcoin at an average price of $51,236.
BNY Mellon: Bank of New York Mellon, or BNY Mellon, is a major bank with more than $2.1 trillion in assets under management. The firm announced in February that it was planning to hold and manage crypto assets for its clients.
Mastercard: The payments giant Mastercard marked its entry into the crypto space through its crypto card partner program. Recently, Mastercard also announced that it will be allowing merchants to accept crypto payments by opening its payments network to some of the cryptocurrencies in 2021.
These are only a few names in the long list of companies adopting cryptocurrencies for countless reasons. And we believe this adoption will only gain more momentum with time. Let’s look at some of the common reasons why companies are going all-in on cryptocurrencies.
Why Are Corporate Giants Interested in Cryptos?
As is evident from the above section, there are multiple ways in which companies are associating themselves with the world of cryptocurrencies. And their reasons to do so are as diverse as their ways of doing it.
Trust and Optimism of Top Executives
Founders and chief executives are at the top of the hierarchy of any company. And the opinions they hold about something greatly reflect in the decisions a firm makes. These top executives of some major companies such as Tesla, Twitter, and Microstrategy had long shown deep interest in Bitcoin. After closely speculating and commenting on Bitcoin and other cryptos for a long time, many CEOs and founders finally led their companies to believe and invest in these digital assets.
Considering the most famous cases in this category, i.e. Tesla, Square, and Microstrategy, we can easily say that their decision to invest in Bitcoin has raked in huge profits for the companies.
Safe Haven and High-Potential Investment Asset
This partially correlates to the first point. The economic crash of 2020 led many companies and their top executives to realize that they needed better safe-haven assets to hedge against rising inflation. This is why so many multi-billion companies such as MassMutual and Microstrategy have invested hundreds of millions into Bitcoin. Some have also stated that while gold acts as a great hedge, it doesn’t offer returns as good as Bitcoin.
Even research institutes back the claims that compared to other assets, Bitcoin can be a high-potential investment. According to CFA Institute Research Foundation, adding Bitcoin to a portfolio has historically had a significant positive impact on long-term portfolio returns with lower risks.
When we speak of companies adding new features and services, there are two classic cases:
- Companies add a new service or feature and create a demand for it and motivate users to try it.
- There's a growing demand for a new service or feature among users and the companies start offering it to users.
In contrast to crypto investments, the case of Tesla and Microstrategy may just fit the first classification. The involvement of PayPal, Mastercard, BNY Mellon, and the likes of them may better fit the second case.
The demand to own, trade, and invest in cryptocurrencies is spiking significantly among institutional and retails investors. And who would sense that better than financial service companies? The companies that have recently started adding crypto-related services to their otherwise fiat-enable platforms are leveraging the growing demand for cryptos among their consumers.
Whether or not more corporations from across the globe use, implement, or invest in cryptocurrencies depends on the regulatory framework that governs these assets.
By the looks of it, things seem to be turning in favour of cryptocurrencies. When BNY Mellon announced its plans to offer crypto management services to its clients, it explicitly stated that the regulatory clarity around Bitcoin was one of the main reasons to do so.
Although some crypto startups had to face adverse situations in the United States due to government crackdown, things seem to be on the brighter end for the crypto community in the U.S. Canada recently approved the world’s first Bitcoin ETF for retail investors. Regulators across the European Union, Singapore, China, and other major countries have also shown interest in forming supporting crypto regulations. This has allowed the crypto ecosystem to flourish while abiding by the laws.
Wide Range of Use Cases
The further we tread down the crypto path, the more we realize that cryptos have far more use cases than most people initially realized. Bitcoin, the first cryptocurrency, introduced the world to a peer-to-peer payment system that operated on a decentralized structure. But Ethereum and other second and third-generation blockchains proved that cryptos can go far beyond that.
Today, cryptos can be used to tokenize any real-world assets from real estate properties to antiques. They can act as a digital representation of fiat currencies such as the U.S. dollar or euro and allow users to store their funds in a more secure and non-custodial manner. Even the art, gaming, and music industries are using crypto tokens, called non-fungible tokens, to give unique identities to creative works and in-game items.
Future of Cryptocurrencies
In the 12 years since its invention, Bitcoin has become widely popular as an investment asset and a means of payment. Bitcoin still remains the top cryptocurrency because of the excellent performance it has shown over the years. But that’s only half of the entire crypto ecosystem. There are numerous cryptocurrencies and tokens with use cases that can altogether change the course of traditional finance for the better.
Right now, cryptocurrencies are headed for great things. And this is likely to continue if regulators worldwide follow the lead of crypto-friendly legislation such as Canada and create an inclusive regulatory framework for cryptocurrencies.
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