Why companies are turning to bitcoin for growth
MicroStrategy’s bold investment in Bitcoin has boosted its stock price by an astonishing 501% this year, transforming the business software company into a beacon for cryptocurrency enthusiasts and a model for corporate imitators.
While software remains its core business, Bitcoin has emerged as a defining strategy.
Inspired by MicroStrategy’s success, other companies are starting to follow suit. These include Marathon Holdings, a cryptocurrency firm, and Japan’s Metaplanet. Even outside the crypto sector, businesses such as the biopharma company Acurx Pharmaceuticals have ventured into bitcoin, recently approving a $1 million purchase.
While corporate bitcoin investments are not new, they remain uncommon outside the crypto industry. However, this trend may be shifting. Industry experts told Business Insider that bitcoin’s increasing institutional adoption reflects a maturing market.
“Speculative transactions, previously inherent in the crypto market, are becoming a thing of the past,” said Gracy Chen, CEO of cryptocurrency exchange Bitget. “The ever-growing interest of institutions in creating reserves based on bitcoin confirms this.”
Hedge against inflation or a quick profit?
Bitcoin is seen increasingly as a hedge against inflation and economic uncertainty, an appealing quality for companies aiming to protect their assets. Bernstein analysts have predicted that Bitcoin could replace gold as the world’s favourite “store of value,” becoming the norm in corporate treasuries.
Chen echoed the sentiment, stating that Bitcoin’s strength in the face of economic turbulence has improved its reputation. Recent proposals from think tanks have also urged corporate giants such as Microsoft and Amazon to consider Bitcoin investments as part of their strategies.
Simultaneously, Bitcoin’s meteoric rally—tripling in value this year—has fueled hopes of significant profits. MicroStrategy exemplifies this potential, having used interest-free convertible debt to acquire tokens, a strategy that has amplified its stock performance. According to Benchmark Company’s managing director, Mark Palmer, the value of MicroStrategy’s bitcoin acquisition this year could reach $7.7 billion if prices reach $97,400, assuming no mining costs are incurred.
For companies attempting to replicate MicroStrategy’s approach, the path is far from straightforward. Bitcoin’s current price is considerably higher than when MicroStrategy began accumulating its holdings, raising the financial stakes for new entrants. Firms leveraging debt to purchase Bitcoin face heightened risks if prices decline, as debt obligations remain unchanged even during downturns.
Despite these risks, MicroStrategy has weathered past market declines by diversifying its Bitcoin acquisition strategies. Palmer emphasised the company’s flexibility, implying that it could minimise potential losses through share buybacks if its stock trades below net asset value.
A divisive strategy
Not all investors are enthusiastic about corporate Bitcoin adoption. Microsoft shareholders recently rejected a proposal advocating Bitcoin investments, with the company’s board recommending against the move.
Chen believes this outcome reflects a broader preference for stability among Microsoft’s investors. “The company’s investment in bitcoin may introduce additional risks to MSFT, while many shareholders invest in MSFT as a predictable and reliable business,” she said. “For shareholders who build their own diversified portfolios, incorporating volatile assets like cryptocurrencies into corporate balance sheets can complicate valuations and distract from the core business objectives that attract investors to the company.”
(Image by Pixabay)
See also: The state of cryptocurrency gaming in 2024: Highlighting major developments
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