Wed. Dec 8th, 2021

Having an eccentric CEO who thinks we live in a simulation and pretends to smoke weeds on a podcast isn’t necessarily a bad thing for shareholders. There is no bad publicity and all that. As you know rock star employees, you can get away with it when you’re exceptionally competent. When this becomes a problem, it is whether the behavior bleeds into the company’s balance sheet in the form of bitcoin.

Tesla Bitcoin balance

Click on the company website

In Tesla’s last 10-Q, the company talks about how $ 1.5 billion was spent buying bitcoins since the beginning of this year, an amount that remains on the balance sheet roughly the same.

The fair market value of our bitcoin holdings as of June 30, 2021 was $ 1.475 billion.

Credit: Tesla

It may sound like a lot of bitcoins, but it’s all relative. Compared to the amount of cash on Tesla’s balance sheet on the same date ($ 16.23 million in cash and cash equivalents), its investment in bitcoin decreases by comparison. About 8.3% of Tesla’s cash has been allocated to a speculative position in Bitcoin. The big question is why.

ARK Invest defends an argument for Bitcoin to play a role similar to gold. After this thought, Tesla could consider bitcoin an asset of “fight for security.” If so, why not buy gold like Palantir (PLTR) recently? (Learn more about this in a bit.) What about buying some Swiss francs? And what is the exact concern here? If the concern is a weakening of the US dollar, use a traditional currency hedging strategy as most companies do.

Tesla does not have Bitcoin as an asset in flight security. Tesla has Bitcoin because CEO and founder Elon Musk has a personal belief that Bitcoin is the future, which is reflected in the fact that he owns Bitcoin like his other company, SpaceX. His comment on Twitter supports his bullshit view on cryptography in general. Do Tesla shareholders feel comfortable that its CEO is speculating in such a way? Probably, yes, because man has a cult-like following. Loving or hating him, Elon Musk is without a doubt one of the greatest technological geniuses we will ever know in our lives. Elon Musk doing weird things is almost an expectation. But what if other companies start to engage in bitcoin?

MicroStrategy Bitcoin balance

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Tesla accumulates bitcoins because it believes the future of finance looks different to a company that buys a metric ton, because it believes the price will reach the moon. One such company is MicroStrategy, a bitcoin holding company that sells business software side by side. To date, MicroStrategy has spent $ 2.7 billion buying bitcoins while its CEO spends all his time talking about everything he can have on any financial podcast.

As of June 21, 2021, MicroStrategy had a total of approximately 105,085 bitcoins, which were acquired at an aggregate purchase price of approximately $ 2.471 billion and an average purchase price of approximately $ 26,080 per bitcoin, including fees and expenses.

Credit: MicroStrategy

We recently wrote about why MicroStrategy Stock is not a good Bitcoin investment. If you want to expose yourself to business software, go buy a business software company. If you want bitcoins, go buy bitcoins. But don’t buy shares in a company that sells a product with declining revenue growth, while the CEO does everything, but focus on what they pay you to do, which is not speculate with bitcoin.

Falling MicroStrategy Revenue: Credit: Yahoo Finance

This brings us to a company that has not yet activated cryptocurrencies, but is certainly thinking about it.

Palantir: a flight to safety?

Click on the company website

We do not currently hold Palantir shares for the reasons mentioned in our piece An Enterprise Enterprise Showdown: C3 Stock Vs. Palantir Stock. Still, we were surprised to see that the company has recently started accumulating a small position in gold. Compared to the $ 2.3 billion in cash and cash equivalents on its balance sheet, a gold position of $ 51 million represents approximately 2.2% of cash. What wiped everyone’s feathers was the reason gold was bought: “be prepared for a future with more black swan events.” This comes from a company whose experience is literally helping to predict black swan events.

Credit: Yahoo Finance

What does Palantir know? (Enter your own conspiracy theory here.) The company’s decision to buy gold bars is no surprise when we consider that they are also thinking of engaging in cryptocurrencies.

In May, after asking Glazer in an analyst call if the company could have bitcoins or other cryptocurrencies on its balance sheet, he said: “The short answer is yes, we are thinking about it and we have even debated internally “.

Credit: CNBC

This year, Palantir said they would begin accepting Bitcoin as a form of payment for their customers. That hasn’t happened yet, but what happens when they start buying bitcoins with their $ 2.3 billion war closet? We know ARK Invest believes there is nothing wrong with this, but are Palantir shareholders comfortable with the company loading volatile cryptocurrencies?

It is difficult to argue that Palantir’s desire to maintain cryptocurrencies is a flight to security when we already know that they have a very high risk tolerance. Look no further than the SPAC list in which they have plowed money. (The names of the following companies link to our search coverage, if applicable.)

Company name Description SPAC Investment (Millions of dollars)
Lilium Aircraft company that develops aircraft with electric action Yes 41
Robotic Sarcos Robotics company that develops portable and teleoperated industrial robotics Yes 21
Roivant Sciences Pharma focused on the development of promising candidates for end-stage drugs Yes 30
Cellularity Pharma develops cell therapies derived from the placenta Yes 20
Mobility company Unknown N / A 20
Wejo Collects and analyzes vehicle data from connected vehicles Yes 35
Babylon Health AI-enabled health chatbots Yes 35
Boxed Online bulk grocery retailer Yes 20
Pear Therapeutics Development of software-based therapies Yes 10
Autonomous vehicle company Unknown N / A 18
Fast radio An overrated on-demand manufacturing company Yes 20
Triti EV fast charger developer Yes 15
AdTheorent AI-driven programmatic digital advertising platform Yes 15
FinAccel Credit risk and consumer loan platform. Yes 10
Electric vehicle company Unknown N / A 25
Autonomous air vehicle company Unknown N / A 3
Astrocast Global IoT network of nanosatellites No 5
TOTAL 343

We have now covered 57 different SPACs and do not have them in our own portfolio of harmful technology stocks. (We plan to invest in Planet and Ginkgo Bioworks when their mergers end.) As we’ve talked about many times before, SPACs don’t do retail investors any favors, and Palantir has wiped out about 13% of its war coffers on these exceptionally risky assets.

What makes these investments unique is that they are accompanied by a kind of arrangement. First, these investments depend on the completion of mergers, which is not determined. If the mergers are completed, Palantir’s investment will be effective and they will also have “signed a commercial contract for access to the company’s products and services” with each of these entities. The vague wording surrounding these arrangements is open to interpretation, but we can better say that they represent the possibility that these companies will use Palantir products for years to come. The maximum potential revenue from these commercial contracts is $ 590 million.

We’re not quite sure how to interpret these arrangements, but it all stinks. We would highly prefer a company that stays at a distance from its customers and focuses on selling software subscriptions as a service. Managing an SPAC investment portfolio is not what shareholders pay to Palantir’s management team.

A record amount of cash

An article on CNN yesterday talked about how the world’s largest non-financial corporations have “a record $ 6.85 trillion in cash on their balance sheets at the end of the second quarter,” a number that is expected to grow. It is said that the reason for hoarding so much cash responds to the uncertainty about how the Rona could affect the world economy.

It’s a concern we also expressed in yesterday’s piece on Circle, which talked about the exceptional risk that has become throughout the blockchain / cryptography space, from ICO to NFT. Volatile cryptocurrencies have hardly been shown to provide any security paradise similar to the way gold is perceived. The appeal of alternative assets, such as gold, wine and art, which we now hold, is that they are not correlated with equity and, as a result, provide a form of asset class diversification. These alternative asset classes account for no more than 8% of total assets under management, having recently increased art and wine allocations to offset inflation. Owning more than 10% of a given alternative asset class moves more toward speculation and away from diversification.

Traditionally, companies have used cash to finance growth through capital expenditures, to acquire other companies, to pay dividends, or to support themselves in the event of a rainy day. There is a reason why cash appears on the balance sheets as “Cash and cash equivalents”. (Cash equivalents are any short-term investment securities with maturities of 90 days or less.) The reason for this is to ensure liquidity along with the lowest level of risk. No matter what black swan event you think is approaching, cash is considered and will always be the lowest risk asset on the balance sheet.

Conclusion

If companies start to store value in different currencies of any kind (digital or not), they will have to cover this volatility as always. Otherwise, they speculate. Well-paid management teams are paid to run companies, not speculate on risky assets. We are perfectly capable of doing it ourselves.

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