There are many companies out there showing a more open-minded attitude towards crypto. They are purchasing the digital asset in spades and adding it to their balance sheets. They are also potentially interested in accepting it as a form of payment. According to Jerry Klein – managing director of the investment firm Treasury Partners in New York – it’s a big mistake when firms open their hearts to BTC and other forms of crypto.
Jerry Klein Doesn’t Think Companies Should Buy BTC
He says there are three big risks associated with warming up to BTC. The first is monetary loss. This item is to be expected on a list such as this given that for years, many analysts have been saying that bitcoin’s volatility is quite rough. Not long ago, the currency was trading for around $68,000 per unit. However, the asset has now fallen into the high $30,000 range, losing almost half its value from right around three months ago when it achieved its new all-time high.
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Klein explained in an interview:
Companies could lose a significant portion of their corporate cash by investing in bitcoin.
The problem of potentially losing money opens the doors to the second problem, which is that the firms see their investors losing confidence. Klein commented:
Investors in public companies have historically not been tolerant of losses from corporate cash investing. Should a public company incur a large loss from its corporate cash investment, investors could lose confidence in the company.
The third and final problem, he says, is accounting troubles. Bitcoin, like many forms of crypto, allegedly comes with “cumbersome” accounting, according to Klein. The asset is not considered money in regions like the United States. Rather, it is thought of as property, and it is treated as an intangible asset. Thus, companies need to account for every time they lose out on profits and Klein feels businesses can only garner revenue from their crypto assets by selling them.
So Many Charges!
Examples of this can be seen in companies such as Tesla, which revealed last October that it experienced an impairment charge of more than $50 million due to the firm’s bitcoin holdings for the third quarter of 2021. MicroStrategy – the software firm that first began investing in bitcoin in August of 2020 – experienced a similar charge of nearly $150 million in the fourth quarter of last year. This was considerably more than the $65 million charge it incurred in the previous quarter.
As of the end of January 2022, MicroStrategy has more than 125,000 bitcoin units in its balance sheet which are worth just shy of $4 billion. Klein, however, says that MicroStrategy and a lot of these bitcoin-loving firms are not concentrating hard enough on capital preservation, which he says should be the most important goal of any surviving business.