Stocks That Hold Bitcoin On Their Balance Sheets
Having an eccentric CEO who thinks we’re living in a simulation and pretends to smoke weed on a podcast isn’t necessarily a bad thing for shareholders. There’s no such thing as bad publicity and all that. As you rock star employees out there know, you can get away with quite a bit when you’re exceptionally competent. When this becomes a problem is if the behavior bleeds onto the company’s balance sheet in the form of cryptocurrency.
Tesla’s Bitcoin Balance
In Tesla’s most recent 10-Q, the company talks about how they spent $1.5 billion buying bitcoin since the beginning of this year, an amount that remains on the balance sheet at roughly the same amount.
The fair market value of our bitcoin holdings as of June 30, 2021 was $1.47 billion.Credit: Tesla
That may sound like a lot of bitcoin, but everything is relative. When compared to the amount of cash on Tesla’s balance sheet as of the same date – $16.23 billion of cash and cash equivalents – their bitcoin investment pales in comparison. About 8.3% of Tesla’s cash has been allocated to a speculative position in bitcoin. The big question is why.
ARK Invest makes an argument for bitcoin playing a similar role to gold. Following that train of thought, Tesla could consider bitcoin a “fight-to-safety” asset. If that’s the case, then why not just buy gold like Palantir (PLTR) recently did? (More on this in a bit.) What about buying some Swiss Francs? And what exactly is the concern here? If the concern is a weakening U.S. dollar, then use a traditional currency hedging strategy like most firms do.
Tesla doesn’t hold bitcoin as a flight-to-safety asset. Tesla holds bitcoin because the CEO and Founder, Elon Musk, holds a personal belief that bitcoin is the future, something reflected in the fact that he personally holds bitcoin as does his other company, SpaceX. His commentary on Twitter supports his bull view on crypto in general. Do Tesla shareholders feel comfortable that their CEO is speculating in such a manner? Probably, yes, because the man has a cult-like following. Love him or hate him, Elon Musk is arguably one of the biggest technological geniuses we’ll know in our lifetimes. Elon Musk doing odd things is almost an expectation. But what if other companies start dabbling in bitcoin?
MicroStrategy’s Bitcoin Balance
Tesla accumulating bitcoin because they believe it’s the future of finance seems different from a company that buys a metric ton of the stuff because they think the price will go to the moon. One such company is MicroStrategy, a bitcoin holding company that sells enterprise software on the side. As of today, MicroStrategy has spent $2.7 billion buying bitcoin while their CEO spends all his time talking up the stuff on any financial podcast that will have him.
As of June 21, 2021, MicroStrategy holds an aggregate of approximately 105,085 bitcoins, which were acquired at an aggregate purchase price of approximately $2.741 billion and an average purchase price of approximately $26,080 per bitcoin, inclusive of fees and expenses.Credit: MicroStrategy
We recently wrote about why MicroStrategy Stock is Not a Good Bitcoin Investment. If you want exposure to enterprise software, go buy an enterprise software company. If you want bitcoin, go buy bitcoin. But don’t buy shares in a company that sells a product with declining revenue growth while the CEO does everything but focus on what’s he’s being paid to do, which isn’t to speculate on bitcoin.
That brings us to a company that hasn’t yet pulled the trigger on cryptocurrencies, but they’re certainly mulling it over.
Palantir – A Flight to Safety?
We’re presently not holding shares in Palantir for reasons mentioned in our piece on An Enterprise AI Showdown – C3 Stock vs. Palantir Stock. Still, we were surprised to see the company has recently begun accumulating a small position in gold. Compared to the $2.3 billion in cash and cash equivalents on their balance sheet, a $51 million gold position represents about 2.2% of cash. What ruffled everyone’s feathers was the reason the gold was bought – “to be prepared for a future with more black swan events.” This is coming from a company whose expertise is literally in helping to predict black swan events.
Just what does Palantir know? (Insert your own conspiracy theory here.) The company’s decision to buy gold bars comes as less of a surprise when you consider they’re also thinking of dabbling in cryptocurrencies.
In May, after Glazer was asked on an analyst call if the company could have bitcoin or other cryptocurrencies on its balance sheet, he said, “The short answer is, yes, we’re thinking about it, and we’ve even discussed internally.”Credit: CNBC
This year, Palantir said they would start accepting bitcoin as a form of payment from their clients. That hasn’t happened yet, but what happens when they start buying up bitcoin with their war chest of $2.3 billion? We know that ARK Invest thinks there’s nothing wrong with that, but are Palantir’s shareholders comfortable with the company loading up on volatile cryptocurrencies?
It’s hard to argue that Palantir’s desire to hold cryptocurrencies is a flight to safety when we already know they have a very high tolerance for risk. Look no further than the list of SPACs they’ve plowed money into. (The company names below link to our research coverage if applicable.)
|Company Name||Description||SPAC||Investment (USD Millions)|
|Lilium||Aircraft company developing electrically powered aircraft||Yes||41|
|Sarcos Robotics||Robotics company developing wearable and teleoperated industrial robotics||Yes||21|
|Roivant Sciences||Pharma focused on development of promising late-stage drug candidates||Yes||30|
|Celularity||Pharma developing off-the-shelf placental-derived cell therapies||Yes||20|
|Wejo||Gathers & analyzes car data from connected cars||Yes||35|
|Babylon Health||AI-enabled health chatbots||Yes||35|
|Boxed||Online bulk grocery retailer||Yes||20|
|Pear Therapeutics||Developing software-based therapies||Yes||10|
|Autonomous vehicle company||Unknown||N/A||18|
|Fast Radius||An overvalued on-demand manufacturing firm||Yes||20|
|Tritium||EV fast charger developer||Yes||15|
|AdTheorent||AI-powered programmatic digital advertising platform||Yes||15|
|FinAccel||Credit risk and consumer lending platform.||Yes||10|
|Electric vehicle company||Unknown||N/A||25|
|Autonomous aerial vehicle company||Unknown||N/A||3|
|Astrocast||Global nanosatellite IoT network||No||5|
We’ve now covered 57 different SPACs and aren’t holding a single one in our own portfolio of disruptive tech stocks. (We do plan to invest in Planet and Ginkgo Bioworks when their mergers go through.) As we’ve talked about many times before, SPACs do retail investors no favors, and Palantir has plowed about 13% of their war chest into these exceptionally risky assets.
What makes these investments unique is that they’re accompanied by an arrangement of sorts. Firstly, these investments hinge on the mergers being finalized, something that’s not a given. Should the mergers be finalized, Palantir’s investment will be effective, and they will also have “entered into a commercial contract for access to the Company’s products and services” with each of these entities. The vague wording surrounding these arrangements is open for interpretation, but best we can tell they represent the possibility of these companies using Palantir’s products over the coming years. The maximum potential revenue from these commercial contracts is $590 million.
We’re not quite sure how to interpret these arrangements, but the whole thing stinks. We’d much prefer a company that keeps an arm’s length distance from their clients and focuses on selling software-as-a-service subscriptions. Managing a portfolio of SPAC investments isn’t what shareholders are paying Palantir’s management team to do.
A Record Amount of Cash
An article on CNN yesterday talked about how the world’s largest non-financial companies have “a record $6.85 trillion in cash on their balance sheets as of the end of the second quarter,” a number that’s expected to grow. The reason for hoarding this much cash is said to be in response to the uncertainty surrounding how The Rona might affect the global economy.
It’s a concern we also voiced in yesterday’s piece on Circle which talked about how exceptionally risky the whole blockchain/crypto space has become, from ICOs to NFTs. Volatile cryptocurrencies have hardly been shown to provide some haven of safety similar to how gold is perceived. The appeal of alternative assets such as gold, wine, and art – all of which we’re presently holding – is that they aren’t correlated to equities and consequently provide a form of asset class diversification. These alternative asset classes comprise no more than 8% of our total assets under management – that’s after recently increasing our art and wine allocations to counteract inflation. Holding more than 10% of a particular alternative asset class moves more towards speculation and away from diversification.
Traditionally, corporations have used cash to fund growth via capital expenditures, to acquire other companies, to pay dividends, or to keep in case of a rainy day. There’s a reason cash is listed on balance sheets as “Cash and Cash Equivalents.” (Cash equivalents are any short-term investment securities with maturity periods of 90 days or less.) The reason for that is to ensure liquidity along with the lowest level of risk. Regardless of what black swan event you think is coming, cash is, and always will be, considered the lowest risk asset on a balance sheet.
If companies are going to start storing value in different currencies of any type – digital or otherwise – they need to hedge that volatility as they always have. Otherwise, they’re speculating. Highly paid management teams are being paid to run companies, not speculate on risky assets. We’re perfectly capable of doing that ourselves.
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