Why are companies buying Bitcoin?
COVID-19 has greatly impacted the global economy as it has spread. Stocks significantly fell in March 2020. As we’re writing this in September 2020, the S&P 500 hit a record high at the beginning of the month, but this is caused by central banks around the world printing more money and dropping interest rates to zero.
However, Bitcoin and gold are increasingly being used as hedge assets for inflation. Today, we’ll be looking at why companies and not only individual investors are buying Bitcoin.
Changes in assets held by companies
One company that has recently announced holding Bitcoin is MicroStrategy. This is a NASDAQ listed company that offers analytics tools for companies.
At their financial results meeting from August 2020, they explained to their investors that they would be holding investments in Bitcoin and gold instead of cash.
The reason for this is to prepare for the risk of a drop in the value of the US dollar due to the inflation caused by monetary easing.
While Bitcoin has appeared in hedge funds before, having a company announce their Bitcoin holdings was quite the event. The market responded well to this announcement and their stock price has risen since then.
The company has hinted that they may increase their Bitcoin holdings in September 2020.
MicroStrategy intends to increase their current assets with major tech company stocks and Bitcoin amid the increasing uncertainty resulting from COVID-19.
Consider that Bitcoin was a high-performance asset in 2019 through 2020, and that the best-performing stocks in the last few years were stocks of major IT companies such as GAFA.
GAFA is continuing to grow in double digits in terms of both sales and profits with their market capitalization rising 30 to 40% each year. Apple had a market capitalization of $2 trillion in August 2020, which grew from $1 trillion just two years ago. It is hard to find any other asset with that degree of performance and liquidity.
The recognition of Bitcoin as a hedge asset amid concerns of inflation is a positive thing for crypto asset investors. When stock prices and business performance diverge in the stock market, the fundamentals of Bitcoin being unclear are a strength in the current situation.
However, there are risks in any market scenario. In order to not “put all one’s eggs in the same basket”, companies are hedging assets with Bitcoin and gold suggesting we can expect more companies taking the Bitcoin option both during and after the COVID-19 pandemic.
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