Bitcoin’s Massive Swings Give Pause to CFOs Mulling Reserve Investment: Bloomberg

Wall Street chief financial officers (CFO) are more wary of putting company funds into bitcoin after last week’s 30% price plunge, Bloomberg reports.

Publicly traded companies such as MicroStrategy and Square Inc. have invested millions of dollars of company cash reserves in bitcoin during 2020. Other firms followed suit including insurance giants Ruffers and MassMutual.

But given the return of bitcoin’s infamous price volatility – which saw the largest cryptocurrency’s price drop thousands below its peak of $41,900 set on Jan. – the attraction of that strategy may have lessened, according to company executives Bloomberg spoke with. Bitcoin has since recovered some of those losses and is now trading hands at $35,700, according to the CoinDesk 20.

Severe fluctuations diminish the attractiveness of the leading cryptocurrency because company cash reserves are mainly rainy day funds for maintaining core business needs during unexpected down turns. 

“It would be a red flag for investors if a corporation bought financial assets for speculation purposes unrelated to their core business,” JonesTrading chief market strategist Michael O’Rourke said.

Columbia Business School adjunct professor Robert Willens told Bloomberg investing in bitcoin with those funds poses a risk CFOs might not be willing to stomach after last week’s price action.

“Is it a smart strategy? It could be. But, of course, if it’s not, it would become something that could threaten the very existence of a corporation,” Willens said.