Coincidence? Company stocks rise after they buy Bitcoin as a reserve

It seems to be giveaway season, and that’s exactly what bitcoin is doing, at least for its institutional sponsors like MicroStrategy, Galaxy Digital, Square and Marathon Patent Group, who jumped on the bitcoin money train a little early.

To that end, PayPal announced the 4. in February that its fourth-quarter 2020 profit was up 200 percent from the previous business cycle, and cited two new offerings – a crypto currency tool and a buy now, pay later feature – as the main drivers of its monumental growth.

And while PayPal hasn’t disclosed exact figures on how much of its growth is fueled by its forays into bitcoin (BTC), the fact that the payments giant plans to offer a new cryptocurrency transfer to its 29 million member merchants worldwide in the near future speaks volumes about the company’s confidence in its cryptocurrency vision.

As if that wasn’t enough, CEO Dan Schulman noted in a recent interview that the aforementioned development is just a small portent of things to come, and that it’s just the beginning of a broad roadmap around crypto, blockchain and digital currencies for PayPal.

This suggests that firms in the traditional financial sector that are actively investing in cryptocurrencies are showing markedly different currency trends than their contemporaries. With that in mind, Tesla’s perception of the stock market could now change dramatically after the company recently entered the cryptocurrency market by buying BTC for $1.5 billion.

Ratio of Company’s Equity to BTC Shares

There is no denying that more and more companies from the traditional financial world are finding their way into the cryptocurrency sector. According to Ross Stevens, CEO of NYDIG, his crypto asset management company, for example, already has enough institutional buy orders to grow its bitcoin holdings to more than $25 billion by the end of 2021.

In light of such data, Sam Bankman-Fried, founder and CEO of quantitative crypto trading firm Alameda Research, which currently manages $2.5 billion in assets, told Cointelegraph:

Part of what excites investors is the ability to buy crypto stocks in the public markets. The other part is that the price of BTC has gone up, so to the extent that the company owns BTC, it should go up.

Justin Barlow, a research analyst at The Tie, a provider of data on digital assets in social media, also believes that the continued rise in some companies’ shares is closely tied to their strategies to acquire BTC:

To see this, one need only look at the market capitalization of companies before and after the BTC announcement, he added, citing the examples of MicroStrategy, Square (NYSE:SQ) and Marathon Patent Group (NASDAQ:MARA), which have grown significantly by more than 50% since their respective announcements.

He added that it is safe to assume that more and more companies will try to capitalize on this trend, especially since holding BTC reserves is becoming more common among companies and demand for crypto products among retail and institutional investors is also growing rapidly.

Tesla share price development

As everyone has probably heard, it was recently announced that Tesla, the car manufacturer that has invested heavily in cryptocurrencies, acquired $1.5 billion worth of BTC through various monetary means, increasing the value of the currency by $3,000 within minutes.

In addition, Tesla – one of the world’s ten largest companies by market capitalization and a member of the S&P 500 – will now accept payments for its products in BTC, which could trigger an unprecedented wave of corporate and institutional investment in bitcoin. Sheraz Ahmed, head of business development at the Crypto Valley Association, a blockchain ecosystem supported by the Swiss government, commented to Cointelegraph:

Tesla announced it was buying $1.5 billion worth of bitcoin, and the stock rose nearly 3 percent. BTC has a direct impact on both the cryptocurrency market and the traditional market. Investors see these large companies as pioneers in the new wave of digitization and therefore as good long-term investment opportunities.

From 8. In February, MicroStrategy’s share price rose +670% since its initial bitcoin investment. Moreover, during the same period, the correlation between the stock and BTC increased by 300%.

Due to the unprecedented movement in the market, the company continued to buy additional bitcoins. The last takeover took place on the 21st. In December, the business intelligence and mobility services provider added 29,646 BTC (worth about $650 million) to its reserves.

A similar trend can be seen in Square’s share price, which fell on the 8th. October 2020, the day 4,709 BTC were purchased, was at $183.50, rose nearly 30% in the next three months, and now stands at $258. To put that in perspective, the S&P 500 rose just 4% over the same period.

More diversification in sight?

On the heels of Tesla’s big cryptocurrency announcement, Reuters’ report claims that Apple could also jump on the cryptocurrency bandwagon in the near future, especially since the multinational giant has a clear opportunity to offer its massive customers a mechanism to buy and sell cryptocurrencies – a move that could catapult the company into the heart of the current crypto gold rush.

In this regard, Apple already has a wallet app, as well as strict know-your-customer protocols that, if used in the context of cryptocurrencies, could make the US a world leader in cryptocurrencies and even prevent a possible government shutdown of the industry. On this issue Ahmed said:

The diversification of these conglomerates’ assets creates a positive incentive when their announcements act as a catalyst, driving up the price of bitcoin while increasing their overall capital and thus the intrinsic value of their purchases.

Also in 2017, a number of startups tried to fool investors by including the terms crypto and blockchain in their names, implying that they were actively using these technologies. Still, there are a few examples of companies buying directly this time around, mainly in BTC and Ether (ETH).

Finally, there is reason to believe that with the continued growth of the cryptocurrency sector, a number of companies can now demonstrate that their diversified cash tactics are paying off, forcing other companies to follow suit. Recently, MicroStrategy, one of the pioneers of bitcoin, welcomed 6,917 companies into its entrepreneurial program, showing that there is a lot of interest in bitcoin, Ahmed said.

What’s next for the crypto industry?

Since the beginning of February, bitcoin has soared, rising 20%. This has rekindled hopes that the blue chip asset will break the $100,000 barrier, as many experts already suspected. However, history teaches us that such a rapid increase in the value of BTC will probably be followed by one or more severe corrections.

When asked if this current bullish momentum could double the value of BTC, Cointelegraph turned to CryptoYoda, an independent crypto-currency journalist, who felt that the market was not yet ready to grow, with supply outstripping demand :

I think it’s fair to say that the current situation with Wallstreetbets and the obvious manipulation of financial institutions will lead to higher market prices for crypto in general – you just have to look at the right time.

Moreover, the cryptocurrency market is extremely volatile and it would not be surprising to see a serious correction in the coming days, especially since the market is on the rise, with gains across the board.

This could have a negative impact on the stock prices of companies that have invested heavily in cryptocurrencies, as concerns about volatility could return to investors, leading to heavy selling. However, large companies buying cryptocurrencies is still a new phenomenon, so it’s hard to predict how stocks will perform during a BTC correction.

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