I always feel it is one of those social media platforms that allow bile, toxic chatter and political agendas to flourish. That said, in this US Election, there has been a clampdown on what is not the “truth”. That aside, the main man at Twitter – a Mr Jack Dorsey – whose handle own his platform is @Jack, has recently caused a stir.
Not because of anything he said on Twitter, but what he did as the boss of his other multi-billion-dollar company, Square. It seems Dorsey convinced his board of directors and shareholders to endorse a $50 million (£38m) purchase of Bitcoin. This has caused ripples throughout the whole of corporate America.
Square is a financial platform – we live in the age of platforms these days – that allows its users to buy and sell cryptocurrency and move between fiat (dollars) and Bitcoin. It is what is termed a cash app that competes directly with PayPal’s Venom on money transfers. With about 24 million monthly active customers and 1.1 million followers on Instagram, the younger generation just love it.
It is hugely popular in the USA, which means the company turns over billions of dollars and makes a very nice margin resulting in millions in profit. In the second quarter of 2020, Square turned over $1.9 billion, with a gross profit of $597m. But holding all its cash in cash has just taken a turn.
You see @Jack does not say much about himself on his Twitter handle. For those of you not au fait with this, one can add a bio or verbiage around one’s Twitter name that describes who you are or what your views are. Dorsey simply has one word to describe himself. That word is “Bitcoin”. So, why would he not hold a percentage of his balance sheet assets in Bitcoin? After all, he encourages others to trade it, makes revenues from it and quite literally is a global advocate of it.
With European Central Bank interest rates at negative, with the Bank of England looking to test British banks’ readiness for a potential switch to the same, investors and corporate CEOs should be getting a little jittery. For any responsible CEO sitting on a pile of cash in the treasury that can no longer generate yield via bonds, then action has to be taken. After all, what’s the point of making profits and hoarding cash, only to see the value of it melt way as real asset inflation eats it daily?
Recently, Michael Saylor of the US’ MicroStrategy, a Nasdaq-listed company, stuffed almost $500m of his company’s treasury into Bitcoin. In his words, he was watching his iceberg of half a million dollars melt way each year as poor overnight returns and inflation hit it with a blow torch. Saylor led the way and really gave Dorsey at Square the green light with his board to step up to the plate. Albeit $50m is a drop in the ocean for Square at around 1 per cent of its total assets. But it’s just the start.
This week, Bank of England governor Andrew Bailey, stated that it is hard to see how Bitcoin had any “intrinsic value” and he cautioned over its use as a means of payment. I mean, “hello!” A central banker with a bank now about to hit negative rates for the first time ever, mentioning how “naughty” Bitcoin is.
Maybe it’s just me, but I rather feel Mr Bailey should wake up and smell the coffee. Of course, he is terrified that the “system” he is part of becomes obsolete over time as the Generation Y and Z turn to the likes of Square and Bitcoin as their preferred means of payment and store of value.
At a macro-economic level, the purchasing power of money has decreased since 1971 when we came off the gold standard and then credit sneaked in and took over. Smart guys who are paying attention like Dorsey and Saylor are looking for a new reserve standard for their cash.
They have chosen Bitcoin as it is what they deem “hard money” that has scarcity and trust burned into it with no interfere from central banks. Moreover, the Federal Government has recently granted Kraken a banking licence in the USA to create a crypto-style bank in Wyoming.
The UK, its CEOs and investment companies must be careful not to be left behind. Time to do some fiduciary research. Maybe even ask @Jack.