October is the time for surprises. On October 8, mobile payment giant Square, which has a market value of $ 86.6 billion, announced that it has invested $ 50 million in Bitcoin (BTC). Five days later, a real estate manager at Stone Ridge Holdings, which manages over $ 10 billion in assets, revealed that he acquired over 10,000 BTC worth $ 114 million as part of his financial reserve strategy.
Both follow MicroStrategy, the Nasdaq-listed asset manager, which said last month it raised $ 425 million in Bitcoin, making BTC the backbone of its backing strategy.
Three state-owned enterprises, three large BTC purchases – it could be random. On the other hand, the Federal Reserve’s balance sheet has increased by $ 3 trillion since the beginning of 2019, while the US dollar has weakened 70% against bitcoin, as Stone Ridge founder Ross Stevens noted in a press release from the company on October 13.
BTC: a new reserve asset?
How does Cognoscenti explain this? The US dollar is falling. The yield on bonds is negligible; Gold is trading worse. Companies with cash inflows have fewer places to deposit money, so they are switching to cryptocurrency. “We are seeing a new trend emerging where companies are using bitcoin as a reserve asset for some or most of the treasury,” Anthony Pompigliano said in an October 15 newsletter. Sefedan Amos, economist and author of Bitcoin Benchmark: Decentralized Alternative to Central Banks, told Cointelegraph:
“While I expected to see companies like these taking smaller hedging positions, the size speaks to the growing confidence in Bitcoin that when they were so impressed with the value proposition, they decided to go with a significant allocation.”
‘Crypt for alternative investments’
Edward Moya, senior market analyst at forex trader Oanda, told Cointelegraph that the COVID-19 pandemic has changed the general backdrop for fiat currencies, adding: “In particular, the Fed has indicated a very loose monetary position. For some years, this has led many institutional investors to sneak into alternative investments.
Moya said gold, a traditional haven during the crisis, has been disappointing lately, and as a result, “Bitcoin has become a popular bond diversification game and will likely continue to attract new institutional investors.” Amous added: “There is short-term concern about the depreciation of the dollar in light of increased government spending and stimulus in response to the panic crisis in the corona.”
Paul Cappelli, portfolio manager at Galaxy Fund Management, told Cointelegraph that “the most sophisticated investors have realized [the value of BTC as a non-sovereign, low-value, fixed-supply asset.” Meanwhile, Leonard Noah, head of research at Stack Funds, commented to Cointelegraph:
“These companies are likely to view Bitcoin as a hedge or insurance against current market conditions. […] When these companies enter the markets, they open the door wide and create a form of trust that others can follow. ”
But the COVID-19 trouble may soon subside, or there is sincere hope. According to Amus, this leaves “a critical long-term problem that many companies face as the profits they can get from their cash reserves by holding them in banks or government bonds are diminishing.” In the past, companies could hold on to their government bond holdings and be reasonably confident that the consumer price index (CPI), that is, inflation, was exceeded. But today, “it looks like a growing segment of companies no longer anticipates them in the future,” Amus said.
In fact, Stone Ridge’s funeral announcement was a call for banks and charities to also make Bitcoin an important component of their Treasury strategies. To that end, Stone Ridge offered the services of its New York Digital Investment Group, licensed by the State of New York to convert dollars to cryptocurrency and vice versa, as well as basic preservation, financing, anti-money laundering and customer knowledge services. Capabilities.
Moya warned that bitcoin is still a risky asset, although this may soon change: “Both Europe and America are battling the coronavirus, and investors are mostly expecting governments and central banks to continue to provide massive stimulus to the economy.” BTC is currently a dangerous asset. Value increases mainly with a strong willingness to take risks. Ultimately, when the dollar resumes a sustained downtrend, bitcoin and other cryptocurrencies will attract some safe flows along with gold.