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How much Bitcoin do companies have, what are the reasons for the acquisition and what are the effects?

November 3, 2020

For a few weeks now we have seen great interest in the takeover of Bitcoin by institutional investors. Many of them did so out of a genuine belief that such an asset could potentially go up in price and establish itself as a good hedging tool over time.

In the early years of Bitcoin, there was a kind of reluctance to use it as a payment method or store of value, largely due to the volatility that characterized it. Besides, he did not yet have a defined path or course to take; Some thought that this would be the next world currency, others spoke of “Blockchain yes, Bitcoin no”. And there have also been other cases that simply viewed it as a mockery of forgetting the testimony of Jamie Dimon, President and CEO of JPMorgan Chase, who would have said if he had found one of his employees to invest in Bitcoin he just fired him.

It must be remembered that it was originally promoted by representatives with a certain “fanaticism” who firmly believe in the value of its decentralization and the elimination of a mediator. Governments obviously did not like this, and the immediate reaction was warnings from central banks and financial institutions in major economies. At the same time, there was also no clear definition on the corporate side, as the phenomenon was incomprehensible to the majority and it was not possible to recognize a value proposition. but still, Some took advantage of the “boom” of 2017 and focused on the development and application of blockchain. In fact, the argument was that the use of this technology optimized processes and offered more trust and transparencySome of them were Allianz SE, Ant Financial, Hyperledger and BNP Paribas. Between 2017 and 2018 there was an upward trend in the value of companies due to the use of technology. but not right for investing in crypto assets, especially bitcoin.

Bitcoin in business

How much Bitcoin do companies have, what are the reasons for the acquisition and what are the effects?
How much Bitcoin do companies have, what are the reasons for the acquisition and what are the effects?

The passage of Bitcoin through companies was initially not exactly a fixed asset, but a payment instrument. One of the first companies to make such a decision was OverStock (in December 2013) when it announced that it would accept payments using Bitcoin. At the same time, other companies such as Microsoft, Dish Network Corp., Paypal, Dell, Expedia, and Newegg joined for no obvious reason other than the fact of greater adoption. In the particular case of overstocking, they already had between 5% and 7% of their Bitcoin reserves in 2017Much of this was achieved through the sale of their items, and this resulted in the value of their stocks rising from 11.6% to more than 14%, due to the decision to include Bitcoin. Up until this year, the inclusion of Bitcoin in portfolios in smaller amounts was considered due to various circumstances such as: E.g .: volatility or regulations.

After falling 73% in 2018, Bitcoin once again had a bad reputation and lack of credibility;; However, some held their positions without being carried away by the panic caused by this price drop. These facts did not allow a look at Bitcoin as a security asset; However, the 2020 recovery was driven by a few factors such as the trade war between the United States and China and, more recently, Covid-19.

The survey conducted by Fidelity in June 2020 found that of the 774 companies surveyed For 80% of investors, investing in crypto assets was attractive. It was also reported that 36% of institutional investors in the US and Europe own crypto assets. In particular, 25% of respondents said they had invested in Bitcoin, followed by a 11% of companies that reported investing in ether.

How many bitcoins do companies have?

Knowing how many bitcoins are owned by companies is not an easy answer because not all bitcoin wallets are identified. On the website bitinfocharts.com it is possible to know the wallets and some of their owners. For example, there are around 2,542,672 bitcoins in the first 100 Bitcoin wallets, which corresponds to an exchange rate of $ 13,000 USD).

Table 1. List of Bitcoin Wallets Companies Found in Top 100 Places.

position

%.

BTC

Approximate Value (USD)

1

Houbi

35hK24tcLEWcgNA4JxpvbkNkoAcDGqQPsP 3-of-7

1.01%

187.502

$ 2,470,944,533

4th

Coinbase

3Kzh9qAqVWQhEsfQz7zEQL1EuSx5tyNLNS 2-of-3

0.40%

74.297

979,100,312 USD

5

Binance

34xp4vRoCGJym3xR7yCVPFHoCNxv4Twseo

0.40%

73.436

967,759,907 USD

9

Bitfinex bc1qgdjqv0av3q56jvd82tkdjpy7gdp9ut8tlqmgrpmv24sq90ecnvqqjwvw97

0.34%

63.501

$ 836,830,486

eleven

Bittrex

385cR5DM96n1HvBDMzLHPYcw89fZAXULJP

0.29%

54,302

715,602,609 USD

13th

Binance

386eAUqL3ZNZPmHeABXLo658DTQuJeLzUR

0.28%

52.286

689,040,901 USD

2. 3

CoinCheck
3LCGsSmfr24demGvriN4e3ft8wEcDuHFqh 2-of-2

0.18%

32,823

$ 432,550,623

31

octopus
1AnwDVbwsLBVwRfqN2x9Eo4YEJSPXo2cwG

0.13%

23.228

$ 306,098,770

3. 4

octopus
14eQD1QQb8QFVG8YFwGz7skyzsvBLWLwJS

0.12%

22,211

$ 292,703,770

44

BITMEX
3BMEXqGpG4FxBA1KWhRFufXfSTRgzfDBhJ 3-of-4

0.08%

15,563

$ 205,095,869

49

Coinbase
3DwVjwVeJa9Z5Pu15WHNfKcDxY5tFUGfdx

0.08%

14,500

$ 191,084,283

75

Coinbase
3DVJfEsDTPkGDvqPCLC41X85L1B1DQWDyh

0.06%

11,902

$ 156,847,650

86

Binance

1NDyJtNTjmwk5xPNhjgAMu4HDHigtobu1s

0.06%

10,652

140,368,034 USD

Source: Bitinfocharts. com

As shown in Table 1, the companies with significant amounts of Bitcoin are mostly centralized exchanges like Huobi, Coinbase, Binance, Bitfinex, and Kraken. This is understandable when you consider that all of the bitcoin traded on these platforms is stored in a single wallet. Another important piece of information is that provided by the Bitcoin Treasuries website, which would have revealed that around $ 6.9 billion worth of bitcoins were owned by 18 public companies (Table 2).

Table 2. List of public institutions with stakes in Bitcoin.

Name of the company

Bitcoin

%.

Grayscale Bitcoin Trust

456,537

2.17%

Block.one

140,000

0.67%

CoinShares / XBT provider

69,730

0.33%

MicroStrategy inc.

38,250

0.18%

The Tezos Foundation

24,808

0.12%

Galaxy Digital Holdings

16,651

0.08%

Stone Ridge Holdings Group

10,889

0.05%

3iQ The Bitcoin Fund

8.295

0.04%

ETC Group Bitcoin ETP

5.215

0.03%

Square inc.

4,709

0.02%

Hut 8 Mining Corp.

2,954

0.01%

21Shares AG

2,989

0.01%

Voyager Digital LTD

1,239

0.01%

Riot Blockchain, Inc.

1.053

0.01%

Bit Digital, Inc.

949.5

0.01%

Coin Citadel Inc.

513.0

0.00%

Advanced Bitcoin Technologies AG

253.8

0.00%

DigitalX

215.0

0.00%

Hive blockchain

211.4

0.00%

Cypherpunk Holdings Inc.

263.6

0.00%

BIGG Digital Assets Inc.

145.0

0.00%

Argo blockchain

126.0

0.00%

FRMO Corp.

62.8

0.00%

Source: https://bitcointreasuries.org/

The event, which showed the interest in Bitcoin as a store of value, was the announcement by MicroStrategy that it would invest $ 250 million in Bitcoin. In an interview with MicroStrategy CEO Michael Saylor, he emphasized that one of the reasons they made this decision is because of the value that Bitcoin technology brings and its monetary policy. With that in mind, he recalled that in the US, with real inflation on assets of 7 to 8 percent, interest rates would hit zero. For thought, he found that the development of interest rates was not an advantage. In fact, Saylor found that the company’s actual performance could be negative more than ten times, for which he envisioned a loss of $ 15 million. For Saylor, his perspective is that gold miners will produce 1 or 2 percent more per year, unlike Bitcoin, where its growth rate and inventories are already known, which will be at most 21 million and beyond that, fully planned. He also pointed out that, in general, when raw materials go up in price, people try to produce more; For example fracking and recalling that in the US the oil reserves were at certain limits and when the price of oil rose, fracking was created to increase production from 5 million to 10 million barrels per day. what can’t happen with bitcoin.

Figure 1. MicroStrategy stock price over the past 6 months.

Source: TradingView.com

As can be seen in Figure 1, the value of MicroStrategy stock has risen significantly since May of this year. High in the second half of October at around $ 184 per shareThis shows that this decision was quite positive in terms of Bitcoin.

Another case is the payment platform Square, which has been accepting payments in Bitcoin since 2014 and recently announced the $ 50 million acquisition of Bitcoin, one of its largest investments in crypto assets.. In one of the reports filed with the SEC in March 2020, Bitcoin sales were $ 306,098 million, up 367% from March 2019. The increase was due to the increase in the number of US dollar Bitcoin customers and demand. Not happy with it, for the second trimester, Square bought a total of 4,709 bitcoin, which according to the company represents roughly 1% of its total assets.. His decision was based on the conviction of its founder and CEO Jack Dorsey, who has been convinced for several years that Bitcoin will become the “single currency” of the world, and also advocated the decentralization of the protocol, which in his view makes it a ” Instrument of economic strengthening ”.

On the flip side, the Grayscale Bitcoin Trust (GBTC), one of the largest mutual funds, said it had 29 registered institutional owners and shareholders, including ARK Investment Management LLC, Rothschild Investment Corp., Blockfi Inc. and Kinetics Portfolios Trust, IFP- Consultants, to name a few. One of its most recent reports highlighted the existence of 180,385 million shares. In addition, $ 905.8 million in investment products were raised in the second quarter of 2020, an increase of nearly 80% over the previous quarter and the largest inflow of capital in a quarter in the company’s history. By October 2020, the company already had $ 6.5 billion of private investment in Bitcoin, and its shares had increased more than 50%, as shown in Figure 2.

Figure 2. GrayScale’s last 6 month stock price.

Source: TradingView

It is worth noting that In contrast to institutions like MicroStrategy or Square, Grayscale is an investment vehicle that was created with the aim of investing on an institutional level and not just as a store of value.

Based on the information shown above, It is possible to visualize a significant increase in companies interested in participating in Bitcoin, for example through an investment vehicle such as an ETF, those that allocate a percentage of their income directly as an investment, or those that accept Bitcoin as a means of payment.

Reasons Companies Buy Bitcoin

There are likely several reasons why a company or institution may choose to purchase Bitcoin. Until a few years ago, however The decision was based solely on being a differentiator from the competition. For example, Cory Vines, a clothing company, started accepting Bitcoin in 2014 simply because some customers requested it and because it was the only retailer to accept it. Another reason at the time was that the fees were lower compared to bank cards and they also had the expectation that their income would increase, just like with Overstock, which had $ 1 million in Bitcoin revenue in just one month. Dollars. In the same year, Forbes magazine also accepted Bitcoin as a means of payment and also offered its publishers a Bitcoin payment upon request. In a statement, the company mentioned that despite the fact that the future was uncertain at the time, the use of Bitcoin had certain benefits, such as: Lower transaction costs, less risky than other currencies as it is not tied to a country, security in the protocol that would prevent it from being forged, takeover by other companies.

Bitcoin currently represents 61% of the more than 7,500 tokens that exist in the market. Your transaction volume is $ 24.5 billion with around 18.5 million bitcoins in circulation and a market value of $ 242.8 billion. In September 2020 (see Figure 3), Bitcoin showed a high correlation with the SP 500 and gold. This showed that there was no difference in terms of investments. Given the various events we saw in October, they seem to indicate that this correlation has changed and is not following this pattern.

Figure 3. Correlation of Bitcoin with Gold.

Source: Ecoinometrics.substack.com

Liew Hewlett (2017) conducted an investigation in which they suggested the inclusion of Bitcoin in institutional portfolios and at this point in time It was found that an optimal portfolio consisted of 48.82% equity, 49.88% bonds, and 1.30% Bitcoin. This indicated a low participation of Bitcoin in an institutional portfolio. However, Over time, there have been other variables that have led to more consolidation, mainly the regulatory part. Indeed, in a corporate investment portfolio, Bitcoin has important advantages such as:

  1. The costs of operation, storage and transaction are lower.
  2. Some can be more fluid.
  3. They have variables that can drive them to get higher returns.
  4. The value of the company’s shares will eventually increase.

With the facts already mentioned, It is very likely that the trend of companies buying bitcoin as an investment strategy will continue in the coming weeks. With that in mind, we might believe that this is what is happening:

  • More companies are being attracted as Bitcoin can officially be viewed as a store of value.
  • Investors will continue to keep their bitcoin.
  • Bitcoin and gold are likely to continue similar variations if the correlation persists (see Figure 3).

Bitcoin’s growth potential is quite large as Bitcoin’s market capitalization is around 50 times lower than gold. However, their behavior is quite similar, suggesting that as institutions or governments start having Bitcoin in their treasuries, it is likely to outperform gold.

Another aspect that we shouldn’t be leaving out is the intervention of states, as they don’t seem to want to be left out when acquiring Bitcoin. For example, in the last week of October in Iran, a new law was announced that would force bitcoin miners to sell their bitcoin to the government, which could be used as a currency for international trade. Likewise, Venezuela recently activated bitcoin wallets for its remittance platform to allow citizens to make cross-border payments. Furthermore, Let’s not forget the amounts of bitcoin that governments have seized. For example, there was a record in 2019 where Bulgaria regained more than 213,519 Bitcoin. In the US, the FBI received approximately 144,000 bitcoins. In October 2020, the Netherlands confiscated 2,532 Bitcoin and Ireland would have confiscated around 6,000 Bitcoin.