Companies that use Bitcoin as "company savings". Is it a bubble?
Hello! I'm Jon, a blogger who brings you the latest news on blockchain technology in an easy-to-understand way.
Recently, have you heard a lot of news about how "famous companies have purchased large amounts of Bitcoin as company assets?" It sounds amazing, but some experts are a little worried, saying, "Isn't this just like a bubble (a dangerous state that will eventually burst like a bubble)?"
This time, let's take a simple look at why people say things like that!
First of all, what is a "company that holds Bitcoin"?
First, let's review the basics. A company holds "assets" (property owned by the company) such as profits earned through its business. Usually, most of these are held in cash (currency issued by a country, such as Japanese yen or US dollars).
However, recently, some or even most of those assets are no longer in cash."Bitcoin"Companies that hold Bitcoin as an asset have appeared. These are the "companies that hold Bitcoin as an asset" that are the hot topic of discussion today.
Why would you do that?
This is because people expect that the value of Bitcoin may increase in the future. To use a familiar example, it may be a bit like the feeling of holding part of your savings in "gold" rather than cash, which may increase in value.
What does "profits come from new investors" really mean?
Here is the main point. The original article points out the source of these companies' profits.
Usually, a company makes a profit by selling products or services to customers. For example, a bakery makes a profit by baking bread and selling it. This is called "business revenue."
However, according to the original article, companies that hold large amounts of Bitcoin do not make their income from this business,The value of your Bitcoin holdings will increaseIt has been noted that they have made significant profits from
So why is Bitcoin increasing in value?
This is because there will be an increase in new investors (people who put money into the market in hopes of receiving a return in the future) like you who say, "I want to buy Bitcoin now!"
To borrow an evocative expression from the original article:"You (the new investor) are the ones who are creating the profits of the company."That is what I mean. It's a bit of a startling statement.
If you break this down, it will go something like this:
- See MoreA company buys a large amount of Bitcoin while the price is still not that high.
- See MoreNew investors who see the news and become interested in Bitcoin enter the market and start buying Bitcoin.
- See MoreAs more people want to buy Bitcoin, the price will rise.
- See MoreAs a result, the value of the Bitcoin that the company already held will automatically increase, significantly increasing the profits on the company's books (which are like a company's household ledger).
In other words, one could say that the company's profits are supported by the money that new investors are pouring into the market.
What are people worried about as a "bubble"?
The most worrisome thing about this system is that"New investors will continue to enter the market."This is based on the premise that:
What would happen if something caused interest in Bitcoin to wane and the flow of new money stopped?
If fewer people want to buy, the price is likely to fall. If that happens, the company's "profits" that seemed so large will disappear in an instant, and there is a danger that the value will drop dramatically, just like a bubble popping... This is the core of the warning sounded by this article.
Regardless of whether the company's actual business is going well or not, the value of the company is greatly affected by fluctuations in asset prices. This instability is expressed as being "like a bubble."
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This is a pretty harsh criticism. But I think it's a very important perspective when it comes to investing and dealing with new technologies. When you see news that a company has increased in value by holding crypto assets (virtual currencies), think about where that value comes from. Is it profits generated from business activities, or is it due to rising asset prices? Just being aware of this difference will help you read the news more deeply and become smarter in your interactions with information.
This article is based on the following original articles and is summarized from the author's perspective:
Bitcoin Treasury Companies Are Bubbles