British Company Aims to Become as Big as Strategy with Bitcoin Acquisition
A British company has acquired more Bitcoin for its treasury. It aims to replicate the success of others, particularly Strategy, who have used it for corporate reserves. We discuss this in the article below.
In the last year, a trend emerged that has seen a range of companies buy Bitcoin. Many of them do not even have prior links to cryptocurrency or even the digital sector. This follows a path set by Strategy, former software company Microstrategy, who have turned their gaze from service production to the acquisition of cryptocurrency. One British company is hoping to replicate their success.
The UK Version of Strategy Moves to Acquire More Bitcoin
A digital web design firm, the Smarter Web Company is a listed enterprise that is moving to build a Bitcoin treasury. This follows a growing movement in which companies are stockpiling Bitcoin in their treasuries. The company purchased 16.42 bitcoin last week and is aiming to be the British version of Strategy. While this is a huge way off the 576,230 owned by the US firm, it is indicative of how the corporate market is turning to Bitcoin.
When the company made its purchase, the Bitcoin price was at the $107,000 mark. This made the company’s holdings worth around $6.3million. However, since then the price has climbed even further, breaking its previous record high. The current Bitcoin price is set at around $109,892, recovering after a minor price slide over the week due to sell-offs and profit-taking.
Founder of the company Andrew Webley has explained to online outlets that he is happy to buy now, as the long-term benefits outweigh the short term. This has sent the company’s market cap from $4 million to $100 million.
The company has financed this through the sale of shares. It raised £6.83 million by selling 13.9 million new shares at a cost of 49 pence per share. The company had launched initial public offerings back in April when shares were 2.5 pence.
What Is a Bitcoin Treasury Company?
A Bitcoin treasury company is any business that acquires Bitcoin and adds it to its treasury holdings. To get the money to do this, they often use debts or sell stock. Some businesses have turned their whole strategy to this model, while some have used it to diversify. There are arguments it can help hedge against inflation and reduce the risk in a portfolio. Others point to its inherent volatility and believe it is too dangerous.
A corporate treasury itself is a store of reserve funds or assets. They can be used for liquidity. Companies can turn to them for daily cash needs and they can help protect against shortfalls in the balance. When a company buys into Bitcoin, it holds it and then has the option to sell it at a later date should it need cash.
Many companies are attracted to Bitcoin as it is decentralized. This means it is not run by an exchange or middleman, nor tied to a country. Thus, they believe it is free from the impact of the economic conditions of a given country. This is only partly true, as has been seen in the last few years. The global economy, and particularly the US economy, tends to have a huge impact on the price of Bitcoin.
The Microstrategy Model
Many companies have seen how this transformed Microstrategy’s stock price, pushing them up 501% in a year. Japan’s Metaplanet, Marathon Holdings and others have all moved to voraciously acquire Bitcoin. Amazon may possibly follow suit and take it to a shareholder vote.
There are many reasons this has happened. The biggest is that there has been a lot of speculation that Bitcoin will replace gold as a store of value. This will make it a standard holding in the treasuries of corporations. With rising prices, Strategy has managed to increase its profit well over the $7.7bn mark this year.
However, companies must be careful when entering this market. Strategy started acquiring Bitcoin when the market had a much lower price. It is now more expensive, and despite increased institutional investment, is extremely volatile. One major price drop and companies could be in serious trouble.
Even Microsoft has been in discussion to adopt this approach but decided against it. This was floated by a think tank proposal, but the board advised that shareholders should rebuke the concept. It is believed this was due to them not wanting the additional risk brought on by owning Bitcoin. Doing this can complicate the valuations given to companies, and many see Microsoft as a reliable, good business.
Businesses must now decide if they are willing to take this risk and invest in Bitcoin as part of their treasury. There is a worry that this will be seen as a golden ticket to push up share prices. However, if we have learned anything it is that Bitcoin is inherently volatile. Any business becoming a treasury must factor this into its long-term financial plans.
