Why Major Corporations are Investing in Bitcoin
The reign of cryptocurrencies has continued into 2021. From institutional investors to retail investors, everyone wants to hook themselves to the world of digital assets. Bitcoin hit an all-time high this year and many corporate giants have gotten involved with crypto purchases. From celebrity tweets and mainstream news coverage to countries such as El Salvador adopting Bitcoin as a national currency, the future for bitcoin and other popular digital assets is looking brighter and more globally accessible than ever.
Major crypto-inclined corporations such as Grayscale, CoinShares and Purpose Bitcoin have billions of dollars worth of Bitcoin as assets under management. In this article, we will explore why private, public, and government non-crypto corporations have stepped up their crypto game by allocating significant sums to Bitcoin.
Major Corporations Involved in Crypto
Over the past two years, many major non-crypto firms have adopted Bitcoin as one of their reserve assets or have started offering cryptocurrency services. Here are a few examples:
Microstrategy: The CEO of the intelligence firm, Michael Saylor, was one of the many people who initially criticized Bitcoin. Now, Microstrategy holds BTC as its primary reserve asset. There was a point at which the CEO announced that he was purchasing $1,000 worth of Bitcoin per second. At the time of writing, the company holds over 100,000 BTCs estimated to be worth approximately $3 billion. The company is holding onto 0.58% of Bitcoin’s circulating supply alone.
Saylor has also stated, "Our point of view is being a leveraged, Bitcoin-long company." In order to purchase as many coins as it did, the company acquired debt-financing. As a result of their BTC purchase, the company’s shares have gone up 400% in the past 12 months. Due to Microstrategy’s leveraged BTC standing, legacy investors are using MSTR stock to gain exposure to Bitcoin. The virtual business intelligence company has also stated that it has no intention of selling its Bitcoin holdings since they believe that Bitcoin is going to continuously expand. Additionally, their central belief is that Bitcoin will be the internet’s main asset for value storage. Thus understanding the value digital assets are bringing, will result in one’s understanding of how the internet will look like in the next 5-10 years.
Tesla: Elon Musk, the founder and CEO of Tesla had flirted with Bitcoin and Dogecoin over his ever-so-favourite pastime of sharing controversial tweets. In January 2021, Tesla finally stepped into the crypto world after Musks’ brainstorm session about the potential of Bitcoin via Twitter. The electric car manufacturer invested 7.7% of its $19.384 billion cash holdings in Bitcoin. At the time of writing this article, Tesla owns around $1.311 billion worth of Bitcoin.
The company had also announced that it will be accepting crypto payments for its electric car sales, but that has been put on hold for now since Bitcoin’s proof-of-work method for validating new blocks on its blockchain isn’t environmentally friendly. Elon Musk tweeted in June, "When there’s confirmation of reasonable (~50%) clean energy usage by miners with a positive future trend, Tesla will resume allowing Bitcoin transactions.”
Square: Square is a financial services company founded by Jack Dorsey, the founder of Twitter. The company made its first crypto investment by allocating $50 million to Bitcoin. Earlier in 2021, they allocated $170 million to the digital asset bringing their total to 8,027 BTCs. The company is currently creating a DeFi application for Bitcoin. Instead of relying on banks or other third parties for executing transactions, these transactions will rely on smart contracts. Dorsey mentioned in a tweet that Square is “focused on building an open developer platform with the sole goal of making it easy to create non-custodial, permissionless, and decentralized financial services.”
Twitter: Jack Dorsey has also announced that one of the company’s features on Twitter will implement Bitcoin into its system. A while ago Twitter added the “Tip Jar” feature to its platform so viewers can tip content creators. Currently, the social media network is testing out adding Bitcoin to the “Tip Jar”. After creating a Strike account, content creators will be able to receive crypto tips for their content.
Visa: For years, the company had expressed their support for digital assets. Vice president Ryan McInerney told Fortune that: ”Many years ago, we saw the beginnings of this [fintech] wave coming, and early on we decided we’re absolutely going to lean into this”. Visa has established partnerships with a variety of global crypto exchanges. The company is aiming to make purchasing with cryptocurrencies easier while generating revenue opportunities from those transactions involving a proliferating asset class.
Visa has confirmed that it will accept USDC as a means of payment as well. Prior to that announcement, the company had revealed that it has facilitated more than one billion in transactions via crypto-linked Visa cards within the first six months of 2021. Recently, the company increased its partnerships with crypto firms by more than 40%. Oliver Jenkyn, Visa’s executive vice president and regional president for North America stated, “We want to be an on-ramp and an off-ramp between the regular world and the crypto world”. Moreover, he has explained that currently owning Bitcoin and using it to purchase something is quite difficult. However, when you put a Visa card in front of your crypto wallet or your crypto exchange account, you can easily convert it back to fiat currency and make your purchase. Additionally, the company has partnered with approximately 50 crypto platforms using card programs which will allow its users to convert and spend digital currencies at 70 million merchants worldwide.
Visa has also taken interest in non-fungible tokens (NFT). The company tweeted that it has now entered “a new era of NFT-commerce”. Recently, the company purchased the CryptoPunk #7610 asset for 49.5 Ether, equating to around $150,000.
Mastercard: After witnessing its customers' usage of their cards to buy cryptocurrencies, the payments giant, Mastercard, announced that it will be bringing digital assets onto its network sometime in 2021. However, the company has not specified which cryptocurrency they will be supporting. Nevertheless, they have announced that “We are here to enable customers, merchants, and businesses to move digital value — traditional or crypto — however, they want. It should be your choice; it is your money."
Furthermore, the company will be allowing merchants to accept crypto payments by opening its payments network to some of the digital coins but has not yet announced which ones. Mastercard has started with the issuer side of the project since the demand is higher than the customers’ side. Thus, it has partnered with Circle, Paxos, Evolve Bank & Trust, Metropolitan Commercial Bank, Uphold, BitPay, Apto Payments, i2c Inc and Galileo Financial Technologies to remove their burden of fiat conversions for them. This is not that different from what Mastercard does as a company with transactions and settlements. Where the difference lies, is the Blockchain system behind crypto, which according to Raj Dhamodharan, Executive Vice President of Digital Asset and Blockchain Products and Partnerships is something that the company has been examining for a while. Their ultimate goal is that their users will be able to use their cryptocurrencies to settle any transactions anywhere.
PayPal: PayPal initiated its digital asset support by partnering with Paxos Trust Company in fall 2020. They have now expanded their crypto services from the United States to the UK as well. This announcement caused Bitcoin to reach a 3-month high. Furthermore, users are now allowed to hold Bitcoin, Ethereum, Bitcoin Cash and Litecoin in their PayPal wallets. The only drawback is that users can’t transfer money outside the company's digital wallet. Stats show that US customers that used PayPal to purchase digital assets, log into PayPal, twice as often as the ones that haven’t. The platform has enabled its US customers to use their crypto balance for payments anywhere that accept PayPal. Thus, retailers won’t have to take any action in regard to accepting crypto or take any risks. This feature is yet to be implemented in the UK.
Major Financial Institutions Involved in Crypto
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. BNY announced that it will be the first global bank to allow its customers to hold, transfer and issue cryptocurrencies. However, BNY hasn’t been able to proceed with its digital currency implementation plan since one of its units isn’t sure about Bitcoin.
Wells Fargo: The American financial service company oversees approximately $2 trillion in assets. In August 2021, the firm announced that it will be exposing its wealthy clients to cryptocurrencies. Wells Fargo mentioned that it’s going to offer professionally managed funds to its “qualified investors”. Meaning that they will be the ones choosing who can use these services.
BlackRock: The world’s largest asset manager began offering Bitcoin futures to its clients earlier this year. Funds that are supporting the crypto adaptation are 1) BlackRock Strategic Income Opportunity and 2) BlackRock Global Allocation Fund. The chief investment officer of global fixed income at BlackRock, Rick Rieder, has also expressed that he believes cryptocurrencies could “take the place of gold to a large extent”.
Organizations Accepting Crypto Payments:
Due to the volatility of digital assets, there aren’t many companies that offer the option to use crypto for payments. Nevertheless, with the mainstream adoption of digital assets these days, some companies are now accepting Bitcoin for their sales. Microsoft, Starbucks, airBaltic, Coca-Cola, and Lush are a few brands that have already implemented Bitcoin payments through partnerships for their customers. We believe that 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 digital assets.
Why are corporate giants interested in cryptos?
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
Founder and chief executives are at the top of the hierarchy of any company. Thus, their opinion reflects 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 digital assets.
Considering the most famous cases in this category, i.e., Tesla, Square, and Microstrategy we can see that their decision to invest in Bitcoin has raked in huge profits for the companies.
Safe Haven and High-Potential Investment Asset
The economic crash of 2020 led many companies and their executives into realizing that they need better safe-haven assets to hedge against rising inflation. Therefore, so many multi-billion-dollar companies such as MassMutual and Microstrategy 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.
Research also suggests the same idea 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.
There are two cases when it comes to companies adding new features and services:
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 companies start offering the service to their users.
In contrast to crypto investments, the case of Tesla and Microstrategy may just fit the first classification. The involvement of PayPal and Mastercard and similar cases fits better into the second category.
The demand to own, trade, and invest in cryptocurrencies is spiking significantly among institutional and retail investors. And who would sense that better than financial service companies? 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.
Things seem to be turning in favour of cryptocurrencies lately. 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 because of the 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 EFT for retail investors. Regulators across the European Union, Singapore, China, and other major countries have also shown interest in supporting crypto regulations. This has allowed the crypto ecosystem to flourish while abiding by the laws.
In June 2021, Nayib Bukele, president of El Salvador proposed the formal adaptation of Bitcoin as a form of payment, and it got approved. This approval makes El Salvador the first country to regulate Bitcoin as a form of payment. On September 7th,2021 Bitcoin became a legal tender in El Salvator.
Wide Range of Use Cases
The further we tread down the crypto path, the more we realize that crypto has 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 digital assets can go far beyond that.
Today, cryptocurrencies 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 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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