Startups stack bitcoin and XRP onto their balance sheets for a few reasons.
Whether their shareholders have obtained any value is questionable.
Owning these assets directly may be a safer option.
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strategy(NASDAQ: MSTR) (formerly known as MicroStrategy) famous Bitcoin (Encryption: BTC) Treasury concept, buying cryptocurrency and fixing it on the company’s balance sheet. Now a range of startups are expected to offer the same type of leveraged exposure to anyone willing to buy their stock to choose a select number of digital assets.
But before you hand over any fiscal operator’s dime to any dime, it’s important to see who actually captures their advertising value and understand how the existence of these companies is good for the coins you hold.
In short, cryptocurrency companies accumulate cryptocurrency assets (such as Bitcoin and XRP(Encryption: XRP) on their company’s balance sheet.
Their purpose is to provide investors with indirect exposure to these digital assets while at the same time having theoretically diversified or additional value compared to investors who only buy and hold major underlying assets. They are recent phenomena, even if their main assets can survive for the next decade or so.
In the last quarter, at least five companies were established or hubs with stock coins as their primary strategy or as a backbone of their other business financing strategies. Logistics Group Based on Hong Kong Reitar LogTech Holtings Just applied to buy up to 15,000 bitcoins, worth about $1.5 billion at today’s price. Another company, Twenty-one Capital, hopes to buy 42,000 bitcoins, enough to rank third among company holders.
Image source: Getty Images.
Renewable energy participants Vivopower International Raised $121 million and started a $100 million XRP purchase program. Two smaller private companies announced their intention to form XRP reserves within 24 hours of the transaction. There may be more.
But why are these assets so attractive to hold, and why are investors buying stocks of corporate stocks that can only manage assets that they cannot control?
In short, the CFO has seen that relatively safe assets they already hold have lower yields, which looks even more outrageous, compared to the shooting price of the meteor price of assets like XRP and Bitcoin over the past 10 years.
They may think that the small coin allocation provides a hedge against inflation without the risk of investing in stocks – it is not clear at the latter little bit right. Additionally, buying and holding cryptocurrency means that companies do not have to take any risk of capital investments on value generation equipment and do not have to invest their operating expenses into their labor as most companies do.
What is captured is that each of these new cryptocurrency companies is on the same set of assets and the same infrastructure that supports them. Therefore, none of them have any economic moats and no competitive advantage. This means that, in the long run, they are more likely to be bad investments than the assets they hold.
For example, Vivopower’s transactions depend on Bitgo’s refrigerated coins. Reitar’s prospectus lists Coinbase Prime and Anchorage Digital as backup custodians. Insurance, audit, proof-chain and refrigeration logistics are actually ready-made services, which makes them very operational safe, but terrible for overtaking competitors.
In other words, if you invest in these cryptocurrency businesses, you will pay a premium for coin exposure, and the stock is diluted as the company needs to pay overhead.
Sceptic investors may also ask whether picking up stocks in these cryptocurrencies is safer than holding coins directly. The answer is “not true”. The utilization of balance sheets not only magnifies the room for upwards, but also causes losses to investors if prices fall.
On the brighter side, assuming the rising demand for crypto adopters continues to rise, the scarcity of supply is conducive to buying and holding the coin itself.
The target of just 42,000 bitcoins is the nearly 93 days of global Bitcoin mining issuance. Add Reitar, Vivopower and a dozen smaller imitators, and the circular coins available for public transactions will shrink. None of these is solely attributed to the company holders; it accumulates the agreement.
So the easiest way to browse the wave here is to buy and hold discipline in the digital assets these companies are chasing.
Finally, remember that volatility cuts in two ways. If these cryptocurrencies are forced to dump coins to reach margin calls, then the price may be more violent than normal for cryptocurrencies.
Assuming scarce and consistent adoption remains intact, equity holders will be forced to eat management fees, dilute and execute risks that are not bargaining, and those who only hold coins do not need to pay for any other services.
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Alex Carchidi owns a position in Bitcoin. Motley fool has a place and recommends Bitcoin and XRP. Motley Fool has a disclosure policy.
Cryptocurrency companies are bullish against Bitcoin and XRP. But don’t invest. Originally published by Motley Fool
