COVID-19 has greatly impacted the global economy. Stocks significantly dropped in March 2020. In September, the S&P 500 hit a record high at the beginning of the month, driven by central banks around the world printing more money and dropping interest rates to zero.
On the other hand, Bitcoin and gold are increasingly being used as hedge assets for inflation. Today, we’ll be looking at why companies are buying Bitcoin, in addition to individual investors.
Changes in assets held by companies
One company that has recently announced investments in Bitcoin is MicroStrategy, a NASDAQ- listed corporation that offers analytics tools for companies. At their financial results meeting from August 2020, they explained to their investors that they would spend half of their cash holdings ($250 million) on Bitcoin and gold instead of cash. The reason for this move is to prepare for the risk of a drop in value of the US dollar due to the inflation caused by monetary easing.
While Bitcoin has appeared in hedge funds before, having a company announce their Bitcoin holdings was quite the event. The market responded well to this announcement and their stock price has risen since then. MicroStrategy intends to increase their current assets with major tech company stocks and Bitcoin amid the increasing uncertainty resulting from COVID-19.
Bitcoin and major Tech companies stocks viewed as top performance assets
Bitcoin was a high-performance asset in 2019 through May of 2020. In the last few years, the best performing stocks were from major IT companies such as GAFA (Google, Apple, Facebook, Amazon), which have served as key investment vehicles for investors.
GAFA is continuing to grow in double digits in terms of both sales and profits with their market capitalization rising 30 to 40% each year. Apple had a market capitalization of $2 trillion in August 2020, which grew from $1 trillion just two years ago. It is hard to find any other asset with that degree of performance and liquidity.
However, there are risks in any market scenario. In order to not “put all one’s eggs in the same basket”, companies are hedging assets with Bitcoin and gold suggesting that we can expect more companies evaluating Bitcoin as a viable investment both during and after the COVID-19 pandemic.
The recognition of Bitcoin as a hedge asset amid concerns of inflation is a positive thing for crypto asset investors. When stock prices and business performance diverge in the stock market, the fundamentals of Bitcoin being unclear are a strength in the current situation.
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