Large publicly traded companies aren't following MicroStrategy's lead

Market insiders say bitcoin's sliding price has made large corporations hesitant to follow the example of MicroStrategy, which in recent months has added billions of dollars worth to its balance sheet.

MicroStrategy was a relatively obscure business software company over a year ago, but its reputation was perhaps forever changed when the Virginia-based firm announced the purchase of 21,000 BTC at an aggregate price of $250 million. 

The move — which was followed by successive bitcoin buys — rocketed MicroStrategy's chief executive officer Michael Saylor into bitcoin stardom. Saylor, who has helmed the company since the heady days of the dot-com bubble, is now a luminary of the market with more than 1.2 million followers on Twitter.

MicroStrategy's bitcoin accumulation also sparked a new bull narrative among the market's leading executives: that other large publicly traded companies would soon follow.

While some companies did indeed follow Saylor's lead, including Elon Musk's Tesla and Jack Dorsey's Square, neither have pursued the long-term, multi-round accumulation approach of MicroStrategy. Just yesterday, the firm announced a $489 million bitcoin buy after conducting a debt sale.

Yet the number of large publicly traded firms looking to make big-ticket bitcoin purchases has shrunk in the wake of bitcoin's price depreciation, according to well-placed sources at some of the largest firms in the crypto trade execution space. 

"New net long positions from corporates outside of MicroStrategy are essentially non-existent," one source at a firm that offers trade execution for large institutional crypto clients told The Block. 

The source, which declined to go on record for fear of reprisal from his firm, added that interest remains stable among hedge funds and family offices. 

Another source at a large trading firm operating in the crypto prime brokerage market corroborated this sentiment, noting that corporate treasury buyers have slowed down and none of those currently in the market are as big as MicroStrategy. 

That's a sharp deviation from some of the assessments made earlier this year. Genesis Global, for instance, stood up a business dedicated to working with corporate treasurers. The unit caters to "treasury executives looking to use return on equity liquidity, yield tools to move their business forward," according to its website. 

A spokesman for Genesis did not respond to inquiries related to the current state of the business. 

Elsewhere, NYDIG, a trading services firm in the bitcoin market, notably raised $50 million last year specifically to "accelerate" its corporate treasury tools. A spokesman for NYDIG did not return a message by press time.

In a sense, the silence of these firm's representatives says a lot. The interest isn't there like it was when bitcoin was soaring to all-time highs above $60,000. 

To be sure, the lack of interest among large publicly traded firms does not mean that smaller companies aren't interested in putting bitcoin on their balance sheets. And there's a whole host of other firms still chomping at the bit for coin. 

"Still some interesting movement from hedge funds, family offices, and RIAs taking advantage of the retracement, we've been seeing a lot of buying activity," one source said. "Some insurance companies are still in the mix too."

In a sense, bitcoin's volatility might be one factor keeping large public companies at bay. But there are also accounting headaches that make such firms allocating to bitcoin a non-starter. 

"Accounting is f-cking brutal," the source added. "No real company can take the GAAP EPS hit."

The problem lies in the fact that if a public company makes a bitcoin buy, then all losses need to be reported as losses. Gains from the bitcoin's price appreciated, however, can not be reported as gains until a firm sells. That's because bitcoin is accounted for as an intangible asset, as highlighted by my colleague Ryan Todd. 

"And as an intangible asset, you initially record the asset at cost. And then in future periods, you look at whether there's been any impairment and if there's been an impairment, then you have to write that down on your balance sheet prior to any sale," noted Deloitte's Rob Masey, who added:

"You don't write it off. Sales or gain is only recognized when a sale is actually accomplished. So as a result, each quarterly reporting period effectively looks at the lowest price that Bitcoin is ever traded at since its purchase and requires a write-down."