Excess cash may be one reason American companies are eyeing bitcoin

U.S. firms are sitting on a historic amount of cash. Naturally, companies in the crypto space are trying to convince them to use those holdings to buy bitcoin. 

Companies in the S&P 500 Index are sitting on more than $1.3 trillion in cash, according to recent reporting from the Financial Times. The pitch from Genesis Global, Coinbase, and others, is that there is no better time to join the likes of MicroStrategy, Square — and, most recently, Tesla — in purchasing bitcoin as part of a treasury allocation strategy. 

Even Twitter is considering it, the firm’s chief financial officer told CNBC on Wednesday. 

Sensing an opportunity, Genesis Global is one of a number of firms that have stood up businesses devoted specifically to wooing corporate financial officers to the bitcoin world. 

“We believe companies across all industries will ultimately have a 5% to 10% or high treasury allocation to bitcoin,” said Genesis chief operating officer Dr. Derar Islim. Genesis, which traded more than $20 billion worth of crypto last year, recently launched a service called Genesis Treasury that aims to help firms “use bitcoin to optimize the mix of assets on their balance sheet,” according to a tweet. 

Genesis is not alone in its ambitions. Elsewhere, crypto exchange Coinbase's prime business has attracted a number of investors and public companies, including One River. It also recently served as the lead execution partner for MicroStrategy, a software company that has purchased hundreds of millions of dollars worth of bitcoin since August.

It’s true that companies don’t have that many options for excess cash holdings. Aside from giving it back to shareholders or making an acquisition, the typical vehicles firms use to park their cash – including fixed-income securities — produced paltry yields. Rates have ticked up, depreciating the value of these securities. 

There’s also the fear of rising inflation on the horizon. A record net 92% of fund managers surveyed by Bank of America said they expect inflation to tick higher in the next 12 months. A spike in inflation could push companies with large cash holdings to seek out hedges against the decreasing value of the dollar. 

Buying the coins

As for Genesis, the firm has repackaged its traditional offering of over-the-counter trading, credit, and derivatives solutions to support these large corporate bitcoin buys. Genesis provides a single point of access that sources liquidity from a wide range of over-the-counter trading desks and exchanges. 

“For execution we use a range of approaches including time-weighted average price over a predetermined window, as well as OTC spot trading," said Islim.

Coinbase has its own pitch to corporates. In a statement to The Block, Coinbase's Greg Tusar said that its "unified investing experience unveils the tools sophisticated investors need to execute large and complex trades, complemented by a diverse pool of liquidity."

The white-glove approach aims to mollify the concerns of professionals who oversee corporate treasuries.

Among those concerns is bitcoin’s up-and-down nature. As noted by JPMorgan strategist Nikolaos Panigirtzoglou, the mainstream adoption of bitcoin as a balance sheet asset could be impeded by its signature volatility. 

“Corporate treasury portfolios are typically stuffed with bank deposits, money market funds, and short-dated bonds, meaning that the annualized volatility-or the range of swings during the course of a year-hovers around 1%,” he wrote in a note to clients. The addition of bitcoin to a firm’s balance sheet could boost volatility to as much as 8%, Panigirtzoglou wrote.  

On the other hand, according to Islim, certain firms may view the volatility as a feature, not a bug.

“The upside is big enough that it is all relative,” he said, noting that firms like Genesis can offer various complex derivatives to address some of those volatility concerns. For instance, a client could allocate to bitcoin futures trading on CME Group as a hedge. The volatility could lend itself to a diversification of the balance sheet, he said. 

There’s also the yield opportunity. Given the backdrop of low yields from traditional investment vehicles, bitcoin provides a way for firms and individuals to lend their bitcoin for a high-yield. Some services offer as much as 5% to 10% to users who lend out their bitcoin.

Adding bitcoin to a corporate balance sheet has also been associated with higher stock performance. As The Block Research's Ryan Todd recently noted, Microstrategy has added more than $9 billion to its market capitalization — an 800% increase-since it purchased bitcoin a year ago. Selling its stake in the crypto would net gains of more than $2.4 billion. 

MicroStrategy’s bitcoin strategy in some ways echoes that of companies during the heady cycle of 2017 when the addition of buzzwords like bitcoin or blockchain to their name to trigger a rise in their stock prices. Then again, according to CEO Michael Saylor, nearly 7,000 companies tuned into a bitcoin-focused conference MicroStrategy recently hosted. 

Genesis’ Islim does not expect this trend to be limited to just a few eclectic CEOs. The firm has a strong pipeline of such transactions, he said. Rival NYDIG, meanwhile, appears to be so busy that it has blocked all media opportunities at the moment.

Coinbase's Tusar said the firm "looks forward to helping more companies looking to diversify their capital allocation strategies with digital assets."