Will Bitcoin See 'Reflexive' Buys After Tesla?

Analysts say the market is pricing in the potential for other corporate BTC investments.
Get started at nexo.io.

At stake

What to do with all this cash?

Tesla investing in bitcoin is a sea-change moment for the cryptocurrency industry. After the much-hyped auto company disclosed its $1.5 billion bitcoin buy, the obvious (and unknowable) question became "who's next?"

 

Indeed, U.S. corporations are sitting on a vast trove of cash. According to Moody's Investors Service, nonfinancial firms had a stockpile of $2.1 trillion in U.S. dollars last June. While companies could pay down debt, invest in U.S. Treasury bonds or even go on an M&A spree, there's a certain logic to keeping a war chest:

 

"Obviously, cash provides excellent insurance in times of escalating uncertainty. It insulates firms from risk in the financial markets, ensuring the ability to fund critical projects and compete strategically in their product market," Kristine W. Hankins and Mitchell Petersen, finance professors at the University of Kentucky and Kellogg School of Management, respectively, wrote in the Harvard Business Review.

Crypto-heads, including former acting chief of the OCC Brian Brooks, would deny some of these claims, especially amid a period of intense monetary expansion Just yesterday, Brooks said bitcoin could be a more stable source of value. He noted the U.S. money supply increased 25% in 2020.

Even if you're not an inflation-doomer, this pace of money creation certainly raises questions about what to do with all this corporate cash. It was a question the Royal Bank of Canada implicitly raised yesterday, when weighing in on the Tesla phenomenon.

 

According to analysts at Canada's largest bank's brokerage division, Apple should consider the crypto. With a $2.3 trillion market capitalization, Apple is among the world's most valuable firms. It is also sitting on close to $200 billion in cash.

RBC analysts said a natural move would be for the company to spin up its own crypto exchange. The firm already provides payment and digital wallet services, has a trusted reputation and a research department that could crack long-standing know-your-customer (KYC) challenges.

 

Plus, the analysts estimate, a crypto exchange could bring in $40 billion a year. (That's estimated from extrapolating from Square's bitcoin revenues, and an assumption about 15% of Apple's existing 1.5 billion install base would play around with the new feature.)

 

"If Apple went down this path the U.S.A. would likely acquire the most crypto assets from a global perspective," the analysts wrote.

 

Indeed, increased competition among crypto exchanges might be welcome. Yesterday, a surge in users following the Tesla news caused interruptions among some of the most prominent exchanges.

 

While the crypto infrastructure has improved notably since the last bull market – with large entities able to be counterparties to billion-dollar bitcoin trades without any significant market disruption, as Castle Island Ventures partner Nic Carter noted on CoinDesk TV this morning – there's still work to be done.

 

Commenting on the exchange outages yesterday, eToro Managing Director Guy Hirsch said fiat to crypto trades introduce liquidity and settlement risks between banks and exchanges.

 

The risks are less severe for "pure" crypto to crypto exchanges, Hirsch noted.

 

Maybe there's a lesson there for companies sitting on dollar stockpiles?

Alternate text

Introducing State of Crypto, a CoinDesk Newsletter About Policy

As the U.S. presidency changes hands, CoinDesk's global macro and policy reporter Nikhilesh De launches his State of Crypto weekly newsletter to break down how the new administration could shape the cryptocurrency industry.

 

State of Crypto covers how policy and regulation impact the crypto world – and the other way around.

 

Subscribe to receive State of Crypto every Tuesday.

Quick bites

  • Binance drops its defamation suit against Forbes. (CoinDesk)

  • Decrypt enters Web 3.0 with an IPFS build. (Decrypt)

  • Nik De breaks down what's new and old in the latest global crypto crackdowns. (CoinDesk Newsletters)

  • An easy-to-digest explanation of the ERC-20 token standard. (CoinDesk)

  • ETH futures premium. (Trustnodes)

  • Blockfolio has apologized after racist posts were distributed over its cryptocurrency portfolio and news app. (CoinDesk)

  • Ten common scams in the crypto world in 2021. (DeFi.cx)

Who won Crypto Twitter?

Alternate text

ATTENTION: Scammers have been sending fraudulent emails with links to sites disguised to look like coindesk.com. If you are in doubt about a link, type https://www.coindesk.com directly into your browser; do not copy and paste. Remember, if something seems too good to be true, it probably is.

Blockchain Bites

 

A newsletter from CoinDesk

 

See Previous Editions

Copyright © 2021 CoinDesk, All rights reserved. 

 

250 Park Avenue South New York, NY 10003, USA

You can manage your preferences here or unsubscribe from all CoinDesk email. 

Related Posts


EmoticonEmoticon

:)
:(
=(
^_^
:D
=D
=)D
|o|
@@,
;)
:-bd
:-d
:p
:ng
:lv