Coincidence? Company stocks rise after they buy Bitcoin as a reserve
The market caps of most companies that bought Bitcoin have increased recently, but is that solely thanks to BTC?
It seems to be the season of giving, and Bitcoin is doing just that, at least for its institutional backers, such as MicroStrategy, Galaxy Digital, Square and Marathon Patent Group, which got in somewhat early on the BTC gravy train.
In this regard, PayPal revealed on Feb. 4 that its fourth-quarter profits for the year 2020 had increased by 200% as compared to the previous fiscal cycle, citing its two new offerings — i.e., a cryptocurrency tool and a “buy now pay later” feature — as being the primary drivers for its monumental growth.
And even though PayPal did not reveal the exact figures as to how much of its growth was spurred by the firm’s foray into Bitcoin (BTC), the fact that the payments giant is looking to offer a new crypto remittance tool to 29 million of its affiliated merchants worldwide in the near future just goes to show the faith the company has in its crypto vision.
If that wasn’t enough, company CEO Dan Schulman noted in a recent interview that the aforementioned development was just a “small sign” of things to come and that this is just the “beginning of an extensive road map around crypto, blockchain, and digital currencies” for PayPal.
What this seems to suggest is that firms from the traditional finance space that are actively investing in crypto have been exhibiting monetary trends that are significantly different from their contemporaries. In this vein, even Tesla’s stock market perception could now change drastically after the company recently made its way into the crypto market by purchasing $1.5 billion worth of BTC.
The link between company equity and BTC holdings
There’s no denying that an increasing number of companies from the realm of traditional finance are making their way into the crypto sector. For example, according to Ross Stevens, CEO of NYDIG, his crypto asset management firm already has enough institutional buy orders lined up to push its Bitcoin holdings over $25 billion by the end of 2021.
In light of such data, Sam Bankman-Fried, founder and CEO of quantitative crypto trading firm Alameda Research, which currently has $2.5 billion worth of assets under management, told Cointelegraph that the link between company stocks rising in line with the company’s BTC acquisition moves is very real, adding:
“Partially, investors are excited about having opportunities to buy stock of crypto-affiliated companies on public markets. The other piece is that BTC’s price is up, and so to the extent that the company owns BTC, it should be up, too.”
Similarly, Justin Barlow, research analyst for The Tie — a provider of social media data for digital assets — also believes that this ongoing surge in equities of certain firms is strongly related to their BTC acquisition strategies:
“For evidence, all you need to do is look at the market cap of the companies before and after a BTC announcement,” he added, pointing to examples of MicroStrategy, Square (NYSE:SQ), and Marathon Patent Group (NASDAQ:MARA), which are all up well over 50% since their respective announcements.
He further opined that it’s safe to assume that an increasing number of companies will look to capitalize on this ongoing trend, especially as possessing “BTC reserves” is becoming more common among firms and the demand for increased crypto exposure, from retail as well as institutional investors, is also rising at a rapid pace.
Tesla stock price rises
As everyone would have probably heard by now, it was recently unveiled that car manufacturer Tesla, had invested big in crypto, having acquired $1.5 billion worth of BTC via various monetary avenues, thus sending the currency’s value up by $3,000 within a matter of minutes.
Not only that, Tesla — one of the world’s top 10 largest companies by market cap and a member of the S&P 500 — will now also be accepting payments for its products in BTC, potentially sparking an unprecedented wave of corporate and institutional ownership in Bitcoin. On the subject, Sheraz Ahmed, head of business development for the Crypto Valley Association — a blockchain ecosystem backed by the Swiss government — told Cointelegraph:
“Tesla announced that they’re buying $1.5 billion in Bitcoin, and their share price shot up by close to 3%. BTC is having a direct impact on both the cryptocurrency market as well as traditional ones. Investors see these large corporations as the ones leading this new wave of digitalization and thus a good long-term investment opportunity.”
As of Feb. 8, MicroStrategy’s stock value has skyrocketed by +670% since the company made its initial investment into Bitcoin. Not only that, the stock’s correlation with BTC, too, has increased by +300% over the same time frame.
In the wake of this unprecedented market movement, the firm has continued to purchase additional Bitcoin, with its most recent acquisition coming on Dec. 21, when the business analytics and mobility provider added an additional 29,646 BTC (estimated to be worth roughly $650 million) to its reserves.
A similar trend was also witnessed in relation to Square’s stock value, which, on Oct. 8, 2020, the day the company purchased 4,709 BTC, was at $183.50 only to increase by 30% over the next three months to currently sit at $258. To really put things into perspective, over the same time period, the S&P 500 rose by a meager 4%.
More diversification incoming?
On the heels of Tesla’s big crypto announcement, a report by Reuters claims that Apple might also be looking to get on board the crypto bandwagon in the near future, especially since the multinational giant has a “clear opportunity” to offer a buying and selling mechanism for cryptocurrencies to its massive clientele — a move that could propel the company into the heart of the current crypto gold rush.
In this regard, Apple already has a Wallet app as well stringent Know Your Customer protocols in place, which, if employed within the context of cryptocurrencies, could make the United States a global leader in crypto assets, even hampering any possibility of a government shutdown of the industry. In regard to the subject, Ahmed said:
“The diversification of these conglomerates treasuries creates a positive incentive loop, whereby their announcements act as a catalyst, driving the price of Bitcoin up, with this rise their total capital increases and thus inherent value of their purchase as well.”
Also in 2017, a number of startups tried to trick investors by adding the terms crypto and blockchain to their names, suggesting that they were using these technologies actively. However, this time around, there are a number of live examples of firms buying heavily into BTC and Ether (ETH).
Lastly, it stands to reason that with the continued rise of the cryptocurrency industry, a number of companies are now able to show that their diversified treasury tactics are paying off, thus, in turn, forcing other companies to follow in their footsteps. “Just recently, an early adopter of Bitcoin, MicroStrategy, welcomed 6,917 enterprises on their corporation’s program — showing the significant interest in this space,” Ahmed pointed out.
What happens next for the crypto sector?
Since the start of February, Bitcoin has gained an immense amount of traction, surging by a whopping 20%. This has once again rekindled hopes of the premium asset surging past the $100,000 barrier as many experts had previously suggested. That being said, one thing that history teaches us is that such rapid increases in the value of BTC may likely be followed by one or more heavy corrections.
Thus, on the subject of whether this current upward momentum will be able to spur BTC’s value to twice its current value, Cointelegraph reached out to CryptoYoda, an independent cryptocurrency analyst, who opined that the market is still not ready to rise because “supply outweighs demand,” adding:
“I think it’s fair to say though that the current situation with Wallstreetbets and the obvious manipulation by financial institutions will result in higher market prices for crypto in general — just needs to unfold in due time.”
Also, with crypto being the extremely volatile market that it is, it would be unsurprising to see a heavy correction in the coming few days, especially since the market has been on a tear, with gains across the board.
This could potentially result in the stock prices of companies that have invested big in crypto being affected adversely since volatility fears may once again grip investors, causing large sell-offs. That being said, big companies buying into crypto is still a new occurrence, so it’s difficult to predict how the stocks will behave when a BTC correction happens.