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Cryptocurrencies: tech companies should follow Tesla’s lead and sell out of bitcoin

In percentage terms, the cryptocurrency crash of 2018 was worse than the winter currently gripping the crypto markets. The difference this time is the amount of money involved. In 2018, about $700 billion was wiped from the market’s peak, according to price-tracking website CoinGecko. So far this year, the crypto market cap has fallen by more than $1.2 billion.

Millions of dollars stolen by criminals can be added to the total. This week, Solana’s crypto wallets and the startup Nomad, which operates bridges between blockchains, were targeted by hackers.

For Block, Coinbase, Tesla and the other tech companies that have chosen to invest in cryptocurrencies, holding reserves in volatile assets is becoming increasingly untenable. Diversification is a poor justification for heavy losses.

Software maker MicroStrategy illustrates the risk. Her reward for investing in Bitcoin was a decline in value of nearly a billion dollars in the second quarter of this year. As of June, almost $2 billion was still invested in it, which constitutes the majority of its reserves.

Bitcoin devotee Michael Saylor Resigned as CEO of MicroStrategy but stayed on without bowing. His new role as chairman will focus on buying bitcoin. Such a one-dimensional focus means that, in the eyes of the market, MicroStrategy’s transformation into a crypto investment vehicle is nearly complete. The value of its bitcoin holdings is now worth more than half of its market cap, up from a third in early 2021.

Those looking to stop losses without losing face can follow Tesla’s lead. Boss Elon Musk once boasted that the electric car company has “diamond hands” — crypto-speak for holding onto digital assets even when prices are falling. But it chose to sell most of its $1.5 billion bitcoin holding. The company explained its decision by saying that it needed cash amid the supply chain problems and did not change its view on digital assets. The worst miss of the crash meant it reported an impairment loss of just $106 million related to the sale.

The worst of the sale may be over. But so is the speculative fever of 2021. The folly of investing company cash in unstable digital assets must not be repeated.

Cryptocurrencies: tech companies should follow Tesla’s lead and sell out of bitcoin Source link Cryptocurrencies: tech companies should follow Tesla’s lead and sell out of bitcoin

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