Since Coinbase’s direct listing, it released the transcripts of its Q1 Earnings Call. During the call, the company addressed its plans of listing Dogecoin (DOGE), thanks to its ever-rising demand.

Coinbase‘s CEO Brian Armstrong talked about the exchange’s plans for the memecoin. He stated:

“So, to answer your question directly, we plan to list DOGE in the next six to eight weeks. And then more broadly, we’re going to be focused on how we can accelerate asset addition in the future.”

With regard to queries on what parameters were used to qualify various coins or tokens to add to the exchange and why there weren’t more choices? Armstrong stated:

I think there’s going to be millions of different crypto assets out there, especially as we see new assets being created for new companies being created and there’s even NFT’s and individuals who are tokenizing their time and so in a world where there’s going to be millions and millions of these crypto assets out there, we get this question a lot, how are you deciding, which ones to add, and how can you accelerate it?

Without directly alluding to XRP, the digital asset that has been entangled in a legal battle with the SEC, Coinbase CEO also stated that Coinbase had worked with CRC to create a regulatory framework for coins. He added:

So, today, we use a number of factors, we look at cybersecurity around the coin to make sure that there’s not going to be an issue that would cause customer loss. We also look at it from a legal point of view and a compliance point of view. There’s various concerns out there about securities, for instance, and we’ve worked with things like the Crypto Rating Council to help create clear regulatory frameworks for this.

Data from ICO Analytics stated that the total web traffic for crypto exchanges had increased by 43% over the past month.

Web traffic to crypto exchanges in April 2021. According to the data from SimilarWeb in April a total web traffic to cryptocurrency exchanges has increased by 43%. pic.twitter.com/1evIwg3YEi

— ICO Analytics (@ICO_Analytics) May 7, 2021

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://ambcrypto.com/coinbase-finally-releases-a-timeline-for-listing-dogecoin

As corporate finance leaders prepare to set sail into the post-COVID-19 world amid inflation storm warnings, an increasing number of corporations are taking stock of their treasury reserve holdings. If the worst happens, and the dollar and other reserve currencies weaken, are they sure that all their balance-sheet cash is lashed down securely?

It surely hasn’t escaped their notice, after all, that a number of public companies that “joined” Bitcoin (BTC) in a big way over the past year recently broadcast strong Q1 2021 earnings. Square, which holds $472 million worth of BTC, for instance, reported a quarterly gross profit increase of 79% year-over-year, doubling analysts’ expectations. While Tesla, which plunked down $1.5 billion — 8% of its cash — into BTC in February, posted record earnings with revenues surging 74%. MicroStrategy, which made Bitcoin its primary corporate reserve in 2020, notched a 10% gain in Q1 revenues.

“If inflation picks up, or even if it doesn’t, and more companies decide to diversify some small portion of their cash balances into bitcoin instead of cash, then the current relative trickle into bitcoin would become a torrent,” wrote storied investor Bill Miller in a market letter earlier this year. Already, “companies such as Square, MassMutual, and MicroStrategy have moved cash into bitcoin rather than have guaranteed losses on cash held on their balance sheet,” he added.

Elsewhere, Ark Investments commented in a company newsletter: “Microstrategy, Square, and now Tesla are showing public companies the way to add bitcoin as a legitimate alternative to cash on their balance sheets.”

But Bitcoin remains a volatile asset — as the most recent BTC price drop to $46,000 reminded users again — so maybe its embrace by corporate treasurers is really just a short-term happenstance? On the other hand, if the trend does have legs, is it really appropriate for all companies? If so, at what level of allocation is appropriate?

Overall, what does this say about the global economy if public firms now look to a 12-year-old digital currency to keep its cash stockpiles liquid and secure?

A longer-term trend or seasonal fashion?

“I do not view this as a fad,” Paul Cappelli, a portfolio manager at Galaxy Fund Management, told Cointelegraph. Bitcoin’s “inelastic supply curve and deflationary issuance schedule” make it a “compelling hedge against inflation and poor monetary policies that could lead to cash positions becoming devalued over time,” he told Cointelegraph, predicting:

“Corporations will continue to use Bitcoin as one of the tools available to preserve the value of their balance sheets.”

David Grider, lead digital asset strategist at Fundstrat, informed Cointelegraph that as crypto becomes more mainstream, he expects to see “more corporates holding crypto for legitimate business purposes.” Exchanges could hold it as inventory, tech companies might use it to stake tokens and participate in networks, while multinational corporations could accept it for payments.

“I expect two types of companies to consider early adoption of crypto — ones led by leaders who are strong believers in crypto, as well as companies that may have unique cross-border needs that are a good fit for Bitcoin transfers,” Gil Luria, director of research at D.A. Davidson & Co., told Cointelegraph.

If so, doesn’t this represent a sea change for corporate finance officers? “When I did my treasury exams, the thing we were told as number one objective is to guarantee security and liquidity of the balance sheet,” Graham Robinson, a partner in international tax and treasury at PricewaterhouseCoopers and adviser to the United Kingdom’s Association for Corporate Treasurers, told Reuters. BTC with its volatility might simply not fit the bill.

If Bitcoin were to be used as a corporate treasury reserve, and its price plunged, that company might not be able to meet its working capital requirements, noted Robert Willens, adjunct professor of Columbia Business School, in January, when he described it as “a high-risk, high-reward strategy.”

Has Willens changed his views? “I still believe it is a high risk/high reward strategy,” he told Cointelegraph, acknowledging that “lately, the rewards have far outweighed the risks.” He does see more firms following the lead of Tesla and Square, “as crypto investments become more ‘respectable’ and emerge as a viable outlet for corporate cash balances.” Asked who might lead the way, Willens answered:

“I think companies with iconoclastic leaders — not necessarily confined to a particular industry — would be the most likely to take the plunge and commit a decent amount of the corporation’s cash balances in crypto.”

Fundstrat’s Grider, citing the OTC trading firm Genesis’ Capital trading data, told Cointelegraph that more corporations may be buying crypto than has been reported in earnings statements. The Genesis Q1 2021 “Market Observations Report,” for example, reported a striking jump in “corporates’” share of crypto trading volume to ~27% from ~0% in the quarters prior. “As corporate clients began buying bitcoin for their treasuries in Q1, our ratios shifted,” noted Genesis.

Tesla allocated 8% — Is it too much?

Assuming that a company believes that crypto should be part of its treasury reserves, how much should it actually allocate? Last year, Cappelli told Cointelegraph that an investment of 50 basis points to 2% of reserves was about right, given crypto’s volatility. But since then, crypto prices have skyrocketed, and Tesla allocated a whopping 8% — or $1.5 billion — to its corporate cash reserves. Is the recommended allocation growing?

“I don’t think there’s a bright-line rule that we can apply here across the board,” Willens told Cointelegraph, “but I think something well north of 2% would be appropriate — perhaps as much as 8%–10% might even be acceptable.”

“It will all depend on the company,” Cappelli said this past week. “Corporations manage their balance sheets to fund operations and maintain a certain amount of liquidity.” Bitcoin is still a very volatile asset, “so while it does provide a hedge against inflation, it does come with a certain amount of market risk. I’d be very surprised to see a company allocation much more than a ballpark of 5% currently, but that may change over time.”

Still, what about Robinson’s contention that a corporate treasurer’s job is to guarantee liquidity and security of the balance sheet — and could Bitcoin not do that?

“If you think about crypto purely as cash, it is still very volatile relative to the dollar,” Grider told Cointelegraph. “But some assets like Bitcoin are becoming less volatile lately, and we are seeing strong liquidity emerge in crypto, which is encouraging.”

One way a firm could think about holding crypto is as an alternative to cash, continued Grider, “but you can also think about it like inventory or a marketable securities investment or an intangible long-term asset. That means even if not an ideal treasury asset in all respects, corporates could still hold crypto for other reasons,” such as:

“Certain incumbent businesses could buy crypto as a hedge against tech disruption, just like doing M&A of a competing startup.”

“I think the liquidity concern is a valid one,” responded Willens, “but limiting the investment to 8%–10% of the investible funds ought to insulate treasurers from criticism since the balance of the funds would be deployed in cash and cash equivalents with a readily realizable value.”

There is a sizing exercise that occurs for every investment, added Capelli, and “taking all balance sheet investments into account” is part of any corporate treasurer’s or chief investment officer’s job. Meanwhile, Luria declared that “crypto assets are liquid enough that this should not be a constraint.”

A more significant disincentive to using crypto as a corporate treasury reserve, in Willens’ view, may be the accounting treatment to which it is subjected at present — i.e., “the odd way investments in crypto are accounted for — they are treated as ‘indefinite-lived intangible assets,’ and thus any declines in the value of the asset must be reflected in income from continuing operations, whereas price increases cannot be so reflected.” He described this “unfavorable accounting treatment […] as the most unattractive aspect of an investment therein.”

A “tectonic shift” in global finance?

All in all, the current monetary environment has raised serious corporate concerns about inflation and the continued strength of the United States dollar. It should not be surprising, as Grider said, “that corporations would become more open to alternatives like crypto.”

But something even larger may be going on. As Perianne Boring noted recently in the New York Times, a “tectonic shift” may be underway in global finance thanks to cryptocurrency. “Digital assets have brought forth a new paradigm in global finance,” concurred Cappelli, though we are still in the very early stages:

“With every cycle, there are always pockets of froth, but structurally, what we have seen built over the last few years certainly provides a strong foundation for this new asset class.”

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cointelegraph.com/news/inflation-winds-stiffen-as-bitcoin-ballast-on-balance-sheets-proves-its-value

One public tweet that can have such catastrophic repercussions on an asset’s price is not something we hear on an everyday basis. Well, if you’re Elon Musk then it’s a completely different story. This precisely was the case with BTC’s most recent plummet in the market post Tesla’s announcement.

Various different exchanges saw an abrupt incline in the selling pressure, indicating a growing bearish trend. The cascading effect of Musk’s tweet has brought into question BTC’s uncorrelated status and its near-term price trajectory.

CIO of Blackrock, Rick Rieder shared his optimism about this ‘interesting asset’ in the latest CNBC’s Squawk Box interview. He stated:

“Bitcoin is an interesting asset. It is one that has not reached maturity yet.”

Although he acknowledged the challenges the asset faces – volatility and carbon footprint being the main obstacles, the senior executive remained bullish on the asset. He added:

“I think it’s durable. I think it will be part of the investment arena for years to come … but these challenges are real. They will be overcome over time.”

A Pompliano, a veteran bitcoin bull, too opined on the asset’s recent obstacles, namely the bad PR it’s facing thanks to Tesla.

“It’s very good. It’s the Streisand effect,” says @APompliano on $TLSA no longer accepting #btc. “All the mainstream media and all the blogs and all the Twitter-verse is doing is they are marketing #bitcoin right now. They are waking the world up to what is #bitcoin. pic.twitter.com/qZsFtSDaPI

— Squawk Box (@SquawkCNBC) May 13, 2021

He spoke about the ‘Streisand effect.’ In an additional tweet, he wrote:

“More people will be buying Bitcoin because of Elon Musk’s comments. This is the Streisand effect. Stop the madness and pay attention to the facts. Bitcoin isn’t going anywhere.”

But what exactly is the significance of this effect? Ever heard of the adage ‘There is no such thing as bad publicity?’ Stats on the subsequent tweets show that these hashtags were trending.

Source: Trendsmap

Another real-life example can be seen in India, where a looming threat of a crypto ban has resulted in a surge in interest.

Speculations surrounding the ban have actually increased the number of people investing in crypto. Something which was pointed out by CZ Binance in a recent ET tech interview. He stated:

“At least from what our data from India shows, it actually causes more people to invest in crypto because they want to get it before the ban comes in,”

Source: Google trends

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://ambcrypto.com/why-tesla-not-accepting-bitcoin-is-the-perfect-ad-campaign-for-it