The bitcoin price hit a new all-time high of $51,000. Meanwhile, companies have been scooping up BTC for their balance sheets in massive amounts, the most notable of which has been Elon Musk’s Tesla, which is buying $1.5 billion of bitcoin for its treasury. Anton Golub, founder and CEO of Flovtec, joined host Teana Baker-Taylor to discuss the trend of corporate treasury management and bitcoin.
Not too long ago, corporate purchases of bitcoin could move the market on exchanges. And while the bitcoin buys seem to come out of nowhere and are seemingly executed very fast, this is usually not the case. In fact, there is a process involved, especially when it comes to publicly traded companies, as they must receive board approval for any kind of allocation in the corporate treasury. This was the case for Tesla, MicroStrategy and Square, for example.
(3:26) “Talking about these big purchases, obviously even doing a sizable trade in the crypto markets, which are still very young, very immature and very illiquid, would massively move the price. So the way they are executed is actually to split these big trades into many, many, many small trades and then over time, through algorithmic means, acquire bitcoins by purchasing them across many different trading venues, meaning exchanges, and also with many different OTC trading participants,” explained Anton.
Once the bitcoins are acquired through algorithmic execution, they are moved out of the exchanges and the domain of the OTC trading venues and put into cold storage. Then the bitcoins sit there rather than sitting on the exchanges. This is all done in a very strategic, slow and balanced environment. Otherwise, there would be strong buying pressure coming toward these trading venues and the price would move even stronger than is the case now, Anton noted.
Balance Sheet Positions, Not Prop Trading
In terms of how long it takes to add bitcoin to the balance sheet, consider that to execute on a daily basis a trade between $50 million and $100 million is actually quite feasible in the current market environment.
(6:16) “So if you just break that down and say Tesla did $1.5 billion…if they really went full monte and tried to acquire 100 million bitcoins per day, that would take two weeks, maybe a bit longer,” said Anton.
When savvy traders see constant buying pressure over several days to even weeks, it’s a clue that something is going on. Prop traders or hedge funds will jump on that and will actually try to ride that wave with counterparty purchases. So it’s a very delicate balance for these corporations to do it in a balanced way but also not take too long because you’re telling the market what you are going to do.
7:30 – “Going forward, I think if bigger companies get involved, this will be a crowded space and we can also expect quite volatile price movements in the coming time period from a context of short-term price action,” said Anton.
Diversifying the corporate treasury is managed from a risk perspective, not a proprietary trading perspective. The CFO and finance department are looking for ways to diversify the corporate treasury. They are looking toward the long-term future and where they can most efficiently allocate part of the treasury that should benefit from that on a long, long time horizon, said Anton, which is several years or decades and definitely not in the domain where the prop traders or hedge funds are.
Canada has launched the first publicly traded bitcoin ETF in North America. It is surprising that the one financially developed country out there that doesn’t have a bitcoin exchange-traded product is the United States.
(10:04) “I think it very much revolves around the confusion on the regulatory side — who wants to actually be responsible for the cryptocurrency space? The CFTC thinks it’s its domain because there is a futures market at the CME available for trading bitcoin futures; then have the SEC, who takes a very close look at it; and then finally you have the financial controller, who actually looks at it from a money transmitter perspective. So a lot of players here who are trying to figure out, whose turf is this,” said Anton.
Grayscale has been such a huge success as they correctly anticipated there won’t be a bitcoin ETF in the U.S. market for many years. They identified a need for a product that gives exposure to cryptocurrency that actually removes the problems around custody.
Most of the spot futures and derivatives market in the crypto world happens on exchanges that are officially offshore. This is a concern from regulators, and it is a rarely thought-through caution from them.
(12:15 ) “I can put my word out there, I don’t think we will have it this year if the status quo stays as it is,” said Anton.
Custody & Regulation
Institutions are coming into crypto, but not in the way that many people thought. BNY Mellon has launched a digital asset unit, and JPMorgan is also making some nods toward bitcoin. This is all a great validation of the industry, Anton said, recalling a conversation with an investment bank from 2017. At that time, the bank said that when crypto becomes a $1 trillion market, then their clients will be interested. But they would need to start preparing when the market hit $500 million. Today, the broader cryptocurrency market cap hovers at $1.4 trillion.
(16:45) “I think custody is the first step. Literally, this is the first baby step for any traditional financial institution…We have a long way to go but again what I see happening behind the scenes is amazing. This is going to be a great ride and the bull run has just started,” said Anton.