Will purchasing Bitcoin be a good move for a publicly traded company to enter the world of cryptocurrency?

Should public companies invest in Bitcoin?

Author: Blocking, Jessy

Hong Kong-listed Blue Hole Interactive announced on June 15 and July 7, respectively, that it had accumulated 44.2 Bitcoins on the open market with group cash reserves of $590,000 and $650,000, respectively, at an average price of $28,054.

This is the second Hong Kong-listed company to announce the purchase of virtual currency assets after Meitu. The company, which is primarily engaged in mobile gaming, has been in a state of loss in recent years. In 2018, it invested in blockchain games, and CEO Wang Feng also resigned as CEO that year to go “all in” on blockchain, doing blockchain media, selling mining machines, opening exchanges, and opening NFT trading markets. However, this year, Wang Feng returned to Blue Hole Interactive. After he was appointed as CEO again, Blue Hole Interactive began to purchase virtual currency assets and reinvigorate its blockchain games.

For listed companies, it is not uncommon to purchase encrypted assets, but in fact, it is only a speculative behavior. Joining the cryptocurrency industry is mostly just following the trend. In fact, when the wind rises, not everyone can fly. Whether it is investing in cryptocurrency or entering the cryptocurrency industry, making money depends not only on luck but also on understanding and judgment of the industry. Do Blue Hole Interactive and other listed companies have this luck and strength?

Blockchain is not a panacea

Blue Hole’s main business is mobile gaming, and it was listed on the Hong Kong Stock Exchange in 2014, but the company has been in a state of loss since 2016.

In 2018, founder Wang Feng announced at an internal core meeting of the company: “Blue Hole fully embraces blockchain, and its games, hardware, and film and television IP businesses are fully chained.” And set up a blockchain game business unit. That year, chain games were hot, and Blue Hole Interactive participated in the launch of two blockchain games, one is CryptoKitties-like “encrypted dog”; the other is pet-raising game “capturing demons”.

Blue Hole Interactive’s choice to launch in the blockchain is also related to its declining performance. The year before it went “all in” on blockchain, 2017 was also the year with the largest loss in Blue Hole Interactive’s four years on the market. According to the 2017 financial report, Blue Hole Interactive’s revenue that year was down 24.9% from the previous year, at only RMB 495 million. The company lost RMB 295 million in the whole year of 2017, an 87.9% increase over the previous year’s RMB 157 million.

Not just NetEase, many companies are turning to blockchain to turn the tide

As the main business encounters bottlenecks, many Hong Kong-listed companies, including Meitu, are investing some of their energy in the blockchain industry. In March 2021, Meitu entered the virtual currency market. The announcement stated that Meitu purchased virtual currency several times on March 7, March 17, and April 8, 2021, accumulating a total of 31,000 Ethereum and about 940.89 Bitcoin, with a total expenditure of $50.5 million and $49.5 million, respectively. Based on this calculation, Meitu’s cost of holding Ethereum is about $1,629 per coin, and the cost of holding Bitcoin is about $52,659 per coin.

It was this move that made Meitu the first domestic company to invest in and purchase Bitcoin, and the first internet listed company in the world to use Ether as a currency value reserve.

Meitu’s main business has always been centered around beauty, but since its listing in 2016, Meitu has not yet been profitable. Especially around 2018, after Meitu tried multiple businesses such as mobile phones, e-commerce, and social media, its revenue declined sharply due to diversification. The blockchain, as a sideline, is seen by outsiders as Meitu’s choice under the inability to find a good transformation and profit path related to the “beauty industry”. In 2018, it launched a decentralized intelligent file based on face recognition technology. In 2022, Meitu also launched Shu Cang. Cai Wensheng himself is also a high-profile participant in the blockchain industry. In addition to personal buying and selling of virtual currencies, he is also an important investor in the circle. In 2014, Cai Wensheng’s Longling Capital invested in OKcoin.

At the current coin price, Meitu’s Bitcoin is still in a loss-making state, but Ethereum is already profitable.

Which other listed companies hold Bitcoin?

The listed company that holds the most Bitcoin is MicroStrategy. Since its first purchase in August 2020, the amount of Bitcoin held by MicroStrategy has exceeded that of any other listed company, with a total holding of 152,333 BTC. MicroStrategy has been increasing its holdings of Bitcoin all along. When it first bought Bitcoin, MicroStrategy treated it as part of its capital allocation strategy. At that time, the company spent $250 million to buy 21,454 BTC and detailed how its investment decision was influenced by “factors affecting the economic and business landscape”.

MicroStrategy CEO Michael Saylor has also publicly stated that he holds 17,732 Bitcoin. Unlike most listed companies, MicroStrategy did not buy Bitcoin with its own funds, but raised funds by issuing convertible bonds. Because of this, major US financial institutions have recently begun to buy MicroStrategy stock to indirectly obtain Bitcoin.

On June 28 of this year, MicroStrategy purchased an additional 12,333 bitcoins at an average price of $29,668 per bitcoin.

The second-largest public company holding bitcoins is Marathon Digital Holdings, which is the largest bitcoin mining company in the world and currently holds 12,538 bitcoins. However, the company has stated that it will gradually sell its holdings in the future.

Once upon a time, Tesla was the second-largest public company holding bitcoins. However, in 2022, it sold a significant amount of bitcoins and suffered a depreciation loss of $204 million. Although it has been selling off its holdings, it still holds 9,720 bitcoins, making it the third-largest bitcoin holder among public companies.

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