Bitcoin in business  !!!                                                                                                                                                                                                                                                           Is Elon Musk a role model when it comes to investing ?
A guest comment by Cyrus de la Rubia
The carmaker Tesla does the same, as does software company Microstrategy and dozens of other companies: They all bought Bitcoin. But does it make sense to invest some of your reserves in cryptocurrencies?
March 17, 2021, 7:16 p.m.

Cyrus de la Rubia

Cyrus de la Rubia is a chief economist at Hamburg Commercial Bank, covering a wide range of topics, from economic analysis to interest and foreign exchange markets to the symbolic economy. Modern money and central banking are among his main goals, he also works in economic policy advice for emerging countries and has been a lecturer at the Frankfurt School of Finance and Management for many years.

Imagine that your competitor invests 100 million euros from its reserves in Bitcoin, say at a rate of 40,000 euros. The competing company is valued at 3 billion euros on the capital market, your company being worth about the same. Suppose that within three years the value of Bitcoin has increased to one million euros. Then, your competitor's Bitcoin would suddenly be worth 2.5 billion euros, and the value of his company would have almost doubled. He is now preparing for a hostile takeover of your company - which he could pay almost entirely out of the extra capital.

A realistic scenario? Better not. However, not so much because an increase in the price of Bitcoin to one million euros would be impossible, but because almost no company would be willing to assume the increased risk of clusters following the increase in price.

However, there is likely to be a growing debate about whether those companies that invest in Bitcoin do not have a competitive advantage over those that do not. With his decision to buy more than 90,000 Bitcoin, Tesla CEO Elon Musk would likely have put pressure to justify in boardrooms, especially those of technology companies, why they do NOT invest in Bitcoin. It is often argued that Bitcoin is the best protection against inflation. However, there are more targeted financial instruments with inflation-linked bonds. However: The pressure to justify why not buy Bitcoin is likely to become stronger for companies as the price of Bitcoin increases.

Bitcoin - The weapon of mass destruction of capital markets or the new currency?
According to information provider bitcointreasuries.org , 25 companies currently own 177,958 Bitcoin with a current value of about 10 billion US dollars. The statistics are dominated by the American companies Microstrategy and Tesla, which together hold almost 80% of the mentioned Bitcoin shares. Most other companies have the words blockchain or digital in their name, so it cannot be said that Bitcoin has reached the size of the corporate world as a fixed financial amount. But if one or two other heavyweights step in from Tesla and Microstrategy, things could pick up speed.

Risk of high fluctuations in value

But does it really make sense to invest some of the company's finances in cryptocurrency? Of course, in addition to cash, stocks, bonds and gold, you can also keep Bitcoin in reserve. However, if Bitcoin begins to dominate the portfolio due to rising prices, every cautious company should reallocate to avoid a risk of concentration, as this can lead to high fluctuations in the value of the company itself, given the usual volatility of Bitcoin.

If, for example, a German mechanical engineering company builds a higher Bitcoin position, without adjusting it over time, in the event of a rise in the price of Bitcoin, the company's true business model would quickly emerge: Cars are still produced here or are about them? an asset manager who manages risky assets? It is possible that many shareholders will put pressure on the surplus capital to either be used for the real purpose of the company or to distribute it.

The most important cryptocurrencies in the world

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Bitcoin is by far the oldest and most popular digital currency. Currently, around 60%, it also has the largest market share of the approximately 7,000 cryptocurrencies. Bitcoin was created at the time of the financial crisis of 2008. Its inventor is known only by an alias to date. The most important features of Bitcoin are the decentralized organization and the use of blockchain database technology . Both provide a high degree of anonymity for Bitcoin users: Bitcoin payments are virtually impossible to track.

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False security

And there is another point that speaks out against the widespread involvement in Bitcoin: the lack of liquidity of the cryptocurrency and its high volatility. A company has reserves to be able to enter them in case of unforeseen events. If unexpected losses occur, for example, equity must be used. Such a transaction would have the potential, depending on the scope, to put pressure on the price of Bitcoin. It is also possible that other companies will liquidate their Bitcoin shares during an economic recession, the price would be under greater pressure, and real revenues would then be significantly below expectations.The company and the shareholders would then be lured into the false guarantee of a comfortable pillow of equity.

It is very possible that the price of Bitcoin will rise sharply in the coming years. Maybe in a few years Bitcoin will also play an important role as an international trading currency. In this regard, companies should definitely deal with this new technology. However, we should not infer from this that now a company needs to purchase Bitcoin on a large scale. At most, appropriately targeted asset managers should take this risk; Companies with a functional business model should focus better on this.

Cyrus de la Rubia is the guest commentator for manager-magazin.de. However, this column does not necessarily reflect the opinion of the store manager's editorial team.