Bitcoin’s booming again. But as an influential CFO just signaled, the new rampage won’t sway corporate America to park the world’s leading cryptocurrency on their balance sheets, the outcome hordes of its fans are predicting. Bitcoin’s wild fluctuations, in fact, represent the opposite of the safety that companies crave in handling their war chests. Sure, its careening course in the past month proved a boon for the maverick CEOs who’ve wagered on the digital coins. But it also reminds mainstream managers of the big risks they’d be taking with funds set aside for new plants, share buybacks, a rainy day emergency, or an acquisition opportunity that just popped up.
For now, Bitcoin’s spike has delivered a paper windfall for the two CEOs who’ve wagered most heavily on Bitcoin, Tesla’s Elon Musk and MicroStrategy’s Michael Saylor. After languishing at just over $40,000 the week following China’s new crackdown on trading, Bitcoin went on a moonshot, waxing 36% in seven days to $54,600 at mid-afternoon on October 6, its highest mark since May 12. The value of Tesla’s 42,000 coins mushroomed by $630 million; it’s now sitting on gains of $830 million, over 85% of what it garnered in pre-tax earnings in the first two quarters of 2021. The unrealized profits on MicroStrategy’s portfolio of 109,000 Bitcoin swelled by $1.5 billion to a total of around $3.1 billion. This for a mobile software provider that lost $409 million pre-tax in the first six months of this year.
When Bitcoin briefly cratered below $30,000 in late June, Tesla’s holdings were underwater, and MicroStrategy’s gains went from sumptuous to piddling. Then, the two crypto-crusaders looked reckless. Now, for Bitcoin believers, the success of Musk’s and Saylor’s gambit proves that companies should ignore the wild ride and board the train.
But one person who’s not buying it? PepsiCo CFO Hugh Johnston. In a CNBC interview on October 5th, he expressed how top management at America’s biggest companies generally view Bitcoin. Asked by anchor Joe Kernen if the beverage and snack giant would consider buying coins for its treasury, Johnston replied that although he would “never say never,” it would “be an awful long time” before PepsiCo could even consider the option because Bitcoin’s “too volatile and speculative.” Johnston stated that PepsiCo’s two top priorities for its corporate cash are “safety and liquidity,” implying that Bitcoin furnishes neither.
Indeed, Bitcoin flops on both counts. Its see-sawing price renders it extremely unsafe. Bitcoin trading volumes are extremely low at around $100 million a day. As a result, big trades move prices dramatically. That makes turning Bitcoin into dollars extremely expensive. A recent study from Bank of America estimated that posting a quote for a large purchase can push prices out by 1%. That 1% is equivalent to paying a commission that size on the trade. By contrast, the cost of trading stocks, bonds and gold is a tiny fraction of that amount.
A few months ago, I interviewed one of the nation’s top managers of corporate cash to gauge big companies’ interest in Bitcoin. Jerry Klein is managing director at Treasury Partners, a firm that oversees fixed income portfolios for dozens of the Coins2Day 500. “Very few companies will accept even modest risk with corporate cash,” said Klein. The rise of Bitcoin, he says, is doing nothing to alter that ultra-conservative mindset. “Not one of our clients has expressed an interest in Bitcoin,” adds Klein. “I don’t see Bitcoin being widely adopted as an investment vehicle for corporate cash.”
Bitcoin’s price could well keep jumping. But contrary to some bluebird predictions, it won’t be cash from corporate America that makes it jump.
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