Companies are starting to express interest in bitcoin as a long-term investment, following in the footsteps of listed giants such as Tesla, which is already seeing its crypto bet pay off.
The electric carmaker disclosed earlier in February that it had bought $1.5bn worth of bitcoin to diversify its wider portfolio and “maximise returns”.
Bitcoin surpassed an all-time high of $58,000 last week and reached a market capitalisation of more than $1trn. In 2020 the cryptocurrency rose 406% in value, and this month alone it rose more than 60% and then started yet another tumble on 22 February, yo-yo-ing between $47,000 and $50,000 this week.
But the volatility hasn’t hampered the wider trend from trickling down, said David Mercer, chief executive of LMAX Group, which operates cryptocurrency exchange, LMAX Digital. This potentially signals a longer life for the digital asset than critics would suggest.
“It was a wilderness when we launched three years ago. You know, you ask your bank whether there was interest in holding this asset or trading this asset class, and it was just a resounding no,” he said.
Mercer told Financial News that the LMAX platform had begun to see “a huge increase in enquiries from banks” seeking to facilitate cryptocurrency orders from clients in Tesla’s wake.
Banks and fund managers followed suit after Tesla’s announcement, with the likes of BlackRock, gold bull Jeff Gundlach and JPMorgan all noting the cryptocurrency’s potential as a treasury asset over more traditional investments such as gold.
“We have 34 banks that trade with us on our core exchanges. We called all of them in 2017 or 2018 and there was literally no interest. I’d say a third of them have now enquired directly about how to access this asset class,” Mercer said.
Though Tesla did not go into any further detail than noting it had bought the cryptocurrency in January, Wedbush Securities analyst Daniel Ives calculated that the firm at one point had made roughly $1bn in on-paper profit from the investment, before the price fell back.
Such a gain would have put the carmaker “on a trajectory to make more from its bitcoin investments than profits from selling its [electric vehicle] cars in all of 2020”, Ives said in a 21 February note.
He added that the investment was a sign of “a trend we expect could have a ripple impact for other public companies over the next 12 to 18 months”, though Wedbush expects less than 5% of those businesses to take that route until more cryptoasset regulation is in place.
“It just makes sense to have a look at it [and] diversify,” said Mercer, predicting that companies will be thinking about putting 3% to 10% “at the most” of their portfolio into diversification through bitcoin investments.
“I suspect every treasury committee, every risk committee and every board is discussing how much they’ll put into it. It might be relatively small — if you’re holding 50% or 90% in dollars, pounds, euros, yen and Swiss francs, then it makes sense to put a very, very small percentage relatively in this new asset class.”
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