Bitcoin’s Future: What Effect is Wall Street Having on BTC?
Monday and Tuesday of this week saw one of the most significant crypto market corrections so far this year.
The drop seemed to have caused many in and around the Bitcoin world to believe that a bear market may have finally arrived: that Bitcoin’s journey past $56,000 was taking a sharp U-turn and headed downward for weeks or months.
However, just as soon as the correction began, it seemed to end.
Indeed, data from Coinmarketcap shows that Bitcoin fell as low as $46,070 on Tuesday, February 23rd. While Bitcoin hasn’t hit over $56,000 since the correction began, Bitcoin’s downward trajectory appears to have been stabilized. At press time, Bitcoin was sitting around $49,000, and had maintained levels between $48,000 and $51,000 over the past 24 hours.
While the dip may be over in the short term, some analysts believe that Bitcoin may be poised to fall further. Others believe that the dip was just a minor bump in the road on Bitcoin’s journey to levels above $60,000. What caused Bitcoin to stop its downward trajectory? And what’s next for BTC?
“Not an example other CEOs will likely follow”?
A number of analysts believe that Bitcoin’s rebound has something to do with large public purchases made by a couple of large companies who “bought the dip.”
Specifically, digital payments giant Square (NYSE: SQ)announced that it would be purchasing $170 million in BTC (roughly 3,320 coins) to add to the $50 million purchase that it originally made in 2020. Additionally, MicroStrategy (NASDAQ: MSTR) announced that it had bought another $1 billion worth of BTC on Wednesday, bringing its Bitcoin holdings to more than $2 billion.
However, while Square, MicroStrategy, and other companies have bet big on Bitcoin in recent weeks, Wall Street investors seem to be quite so enthusiastic. Renowned Bitcoin bear Peter Schiff was happy to point this out on Twitter in the case of Tesla (NASDAQ: TSLA), which has lost roughly 14 percent of its stock value since making a $1.5 billion Bitcoin purchase on February 8th.
“Two weeks after @elonmusk announced that he spent $1.5 billion of shareholder money buying Bitcoin, #Tesla stock entered a bear market, plunging 20% from its all-time high set on Jan. 25th, and 16% since disclosing the #Bitcoin buy,” Mr. Schiff wrote on Twitter, adding that Tesla’s purchase was “Not an example other CEOs will likely follow!”
Two weeks after @elonmusk announced that he spent $1.5 billion of shareholder money buying Bitcoin, #Tesla stock entered a bear market, plunging 20% from its all-time high set on Jan. 25th, and 16% since disclosing the #Bitcoin buy. Not an example other CEOs will likely follow!
— Peter Schiff (@PeterSchiff) February 22, 2021
Square has also lost roughly 2.5 percentage points off of its price since announcing its Bitcoin purchase on Wednesday.
However, MicroStrategy’s BTC purchase seems to have boosted investor confidence. Since the company announced its $1 billion Bitcoin portfolio addition on Thursday, Microstrategy has added roughly 10.4 percent to its stock price (a rise from $740 to $817.)
What do stockholders think about corporate BTC purchases?
Therefore, it’s hard to say exactly what effect Bitcoin purchases are having on the perception of the investors that have holdings in the public companies that are making these large-scale Bitcoin purchases. In the case of Tesla and Square, buying more Bitcoin seems to have had a negative effect. However, in the case of Microstrategy, the latest Bitcoin purchase seems to have had a positive effect on investor sentiment.
Perhaps this has something to do with the kinds of investors that are purchasing stock in companies like Tesla and Square versus a company like Microstrategy; after all, CoinDesk described MicroStrategy earlier this month as “a business intelligence firm best known for the cryptocurrency it buys rather than for any product it sells.”
Square and Tesla, by contrast, are arguably still primarily known for the products and services that they provide rather than the investments they make.
However, it may very well be the case that–in spite of the short-term stock price losses–both Tesla and Square will only continue to add Bitcoin to their balance sheets.
Massive returns for companies who have added BTC to their balance sheets
After all, even if Wall Street investors still have their doubts about Bitcoin’s long-term viability, the short-term gains have been eye-popping. Cryptocurrency market analyst Anthony Pompliano said on Twitter on Sunday that Tesla had already ”made over $1 billion on that investment in less than 45 days.”
Tesla bought $1.5 billion of Bitcoin around $33,000.
That means they have now made over $1 billion on that investment in less than 45 days.
Elon Musk is a legend.
— Pomp 🌪 (@APompliano) February 21, 2021
At the time, Bitcoin was trading at more than $57K; the price has since fallen to approximately $49,300–still, the returns have been impressive. By the same turn, Square and MicroStrategy’s Bitcoin returns have also been impressive.
When Square invested in Bitcoin in October, the cost of each BTC was roughly $10,617. Today, one BTC is worth roughly $49,140; as such, Square’s investment is now worth approximately $230 million–a rise of roughly 360 percent.
Similarly, MicroStrategy’s August purchase of $250 million in Bitcoin at roughly $11,650 a pop has now multiplied into more than $1.05 billion. Since then, the company has added BTC to its balance sheet on a continuous basis.
Square has 5% of their balance sheet in bitcoin.
Tesla has 8% of their balance sheet in bitcoin.
Microstrategy has 95%+ of their balance sheet in bitcoin.
Who is next?
— Pomp 🌪 (@APompliano) February 24, 2021
Therefore, even if stock prices haven’t reacted positively to some of these recent Bitcoin purchases, the risk-to-reward ratio for the companies in question may be worth the uncertainty in the short term. This may be why Dan Ives, Wall Street Analyst at Wedbush, recently said on CNBC’s SquawkBox that, for example, “Tesla is going to continue to double down on its Bitcoin investment.”
Here is the source:- https://t.co/RSk5DMHB5G
— Alpha Centauri (@centauri000) February 22, 2021
Will other corporations be making BTC purchases anytime soon?
“Musk and Tesla are going to dive into the deep end of the pool on Bitcoin,” Ives said. “Because they’re not just [viewing Bitcoin] from an investment perspective, but from a transaction perspective.”
Mr. Ives also said that he believes that other companies will eventually go the way of Tesla: “in our opinion, we think 3 to 5 percent of public companies will go down this route over the next 12-18 months from an investment perspective.”
However, “until regulatory ‘goal posts’ are put in, we don’t think [Bitcoin will] ratchet up too much beyond that.”
Indeed, since Tesla made its Bitcoin purchase public earlier this month, predictions that other publicly-traded “mainstream” companies will follow suit have echoed throughout the media. But, as Mr. Ives said, many analysts agree that the regulatory and technical infrastructure to support widespread corporate investments in Bitcoin simply is not in place.
For example, following Tesla’s BTC purchase announcement, AvantiBT founder and chief executive Caitlin Long wrote on Twitter that the accounting methods that Tesla was using to hold its Bitcoin were “ugly treatment.”
However, she added that “I’m optimistic that this stuff–the ugly accounting treatment for #bitcoin & the risk that bitcoin could get caught up in a lien mess–will eventually get fixed. We’ve gotta keep working on it though!”
1/ HAPPY #TESLA DAY, #bitcoin! Two things in the announcement caught my eye🧐& are worth pondering.🤔
* the $1.5bn #bitcoin purchase was 7.7% of @Tesla's $19.4bn of cash. Why only 7.7%?
* Tesla plans to accept bitcoin as payment but "may or may not liquidate upon receipt." Why? pic.twitter.com/yYO4OpaZOt
— Caitlin Long 🔑 (@CaitlinLong_) February 9, 2021
The efforts to onboard more companies into the Bitcoin world are already underway: Coinbase revealed on February 24th that Bitcoin and other crypto assets have been an important part of its corporate treasury since the company was launched in 2012.
Coinbase’s announcement, which seems to be addressed to corporate investors, says that “we are acutely aware of the numerous considerations that publicly traded and private companies have when it comes to the composition of their treasuries.”
Coinbase also advertised itself as a “partner” who could understand corporations’ “unique concerns” when it comes to adding BTC to their balance sheets.
Bitcoin has created FOMO (fear of missing out) on an investor level; now it will play out on a corporate one.”
Still, it could be a while for other large companies to pour large amounts of cash into Bitcoin (if they ever do come, that is.)
As such, if corporate investments have been the primary factor behind Bitcoin’s upward price movements in 2021, it could be a while before Bitcoin sees another big run. After all, the Tesla investment is largely credited as the causational factor behind Bitcoin’s move from $38K to over $50K during the second week of February.
Additionally, the big BTC purchases by Square and Microstrategy are credited with ending the big BTC market correction that took place earlier this week. But what happens if these companies aren’t there to step in during the next Bitcoin price dip?
It’s possible that this may not be an issue. Dominic Frisby, o-host of television programme Money Pit, told Stansberry Research that “Bitcoin has created FOMO (fear of missing out) on an investor level; now it will play out on a corporate one.”
“#Bitcoin has created FOMO (fear of missing out) on an investor level; now it will play out on a corporate one,” says @DominicFrisby. The author tells @DanielaCambone how Tesla's big buy will create a ripple effect— pushing the crypto even higher.
WATCH: https://t.co/tKJKtAd8d6 pic.twitter.com/7GPcD1ZezY
— Stansberry Research (@Stansberry) February 17, 2021
What are your thoughts on the future of Bitcoin and the effects of Wall Street? Let us know in the comments below.
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