As I said before, “Bitcoin is a hypervolatile asset,” and we saw that in the Strong Bitcoin Swings in the past week. Last Sunday (10th January), the currency lost almost 25% of its value in just 24 hours. And this swing might have almost given a heart attack to companies who invested half of their cash reserves in the same. Even the companies knew what they were getting into, but experiencing it upfront is something completely different. If the price of Bitcoin didn’t recover, it would have resulted in a huge loss of the company. Plus, it would also mean a career that goes downhill for the CFOs (Chief Financial Officer) at these firms.
Is investing company funds in Bitcoin a viable idea?
The fact that Bitcoin has grown 3 times its value in the past few months can’t be ignored. I won’t go to why the CFOs of big companies decided to invest a part of their company’s funds in Bitcoin. The reason is apparent. But, what I would like to say is that these companies might have to reconsider their decision. The idea of having a currency that could plunge any moment as a company’s asset is not a good idea. So, companies like Microstrategy and Square, who have invested $425 million and $50 million in the currency, respectively, might have to pull out.
Well, but for now, it doesn’t seem like the companies are just going to give up on the currency with only one swing. Microstrategy still appears to be wholly invested in the cryptocurrency and looks ahead towards the future. Talking about the viability behind investing the company’s reserves in Bitcoin, a professor from Columbia said, “It’s a high-risk, high-reward strategy.” That seems to be a good enough explanation for what is going on. In other words, it would mean, “You get it all, or lose it all,” it’s that simple. Still, if a company is adamant about taking huge bets on the currency, it would be better to restrict that bet to 50% of its cash reserves.
Other risks that Bitcoin possesses
If one reads about safe investment choices, Bitcoin wouldn’t even appear anywhere near those options. The currency is not only very volatile but also has many other security concerns. This includes the chances of getting hacked, getting frauded, or even forgetting one’s password. A few days back, news surfaced that a man with 1800 crores in his Bitcoin wallet forgot the password to his wallet. Plus, the currency isn’t being regulated, but if the government plans to change that, it might drastically affect its price. The idea that the currency might grow three times its current value again seems promising. But, what happens if it goes down to 1/3rd of its value. A company that might be an investor would probably go bankrupt.
What do you think about the Strong Bitcoin swings in the past week? And does this mean that the rally is over? Let us know in the comments below. Also, if you found our content informative, do like it and share it with your friends.