Aswath Damodaran gives 4 reasons why companies should think twice before parking cash in Bitcoin
ADVERTISEMENT In a July 18 blog post titled "To Bitcoin or not to Bitcoin? A Corporate Cash Question!", Damodaran lays out a clear stance: 'It is a terrible idea for most companies,' he said, adding, 'my reasoning has absolutely nothing to do with what I think of bitcoin as an investment and more to do with how little I trust corporate managers to time trades right.'
Damodaran, renowned for his empirical approach to corporate finance and valuation, argues that Bitcoin fails to meet the core objectives of corporate cash holdings and instead introduces avoidable risks to both balance sheets and business narratives.
At the heart of Damodaran's argument is a simple truth: corporate cash is meant to act as a financial shock absorber. Companies hold cash, he said, 'to meet unforeseen needs,' and to navigate crises or downturns when capital markets dry up.
'Replacing low-volatility cash with high-volatility bitcoin would undercut this objective, analogous to replacing your shock absorbers with pogo sticks,' Damodaran warned. Given Bitcoin's history of plunging during market sell-offs, he said, 'the value of bitcoin on a company's balance sheet will dip at exactly the times where you would need it most for stability.'
Damodaran argued that allowing Bitcoin to play a prominent role on the balance sheet can distract from the company's core business story. 'It creates confusion about why a company with a solid business narrative from which it can derive value would seek to make money on a side game,' he said. Even worse, he said, Bitcoin's inherent volatility can obscure a company's performance: 'The ebbs and flows of bitcoin can affect financial statements, making it more difficult to connect operating results to story lines.'
ADVERTISEMENT The professor made clear his skepticism about letting CEOs and CFOs dabble in timing markets. 'When companies are given the license to move their cash into bitcoin or other non-operating investments, you are trusting managers to get the timing right,' he noted. 'That trust is misplaced, since top managers… are for the most part terrible traders, often buying at the market highs and selling at lows.'Instead of letting corporate leaders gamble on Bitcoin, Damodaran argued that shareholders would be better off receiving that cash as dividends or buybacks to deploy it how they see fit. 'Put simply, if you believe that Bitcoin is the place to put your money, why would you trust corporate managers to do it for you?'
Damodaran underscored a governance concern: 'Giving managers the permission to trade crypto tokens, bitcoin or other collectibles can open the door for self-dealing and worse.' He suggested that even if shareholders don't object, regulators might need to step in. 'The SEC (and other stock market regulators around the world) may need to become more explicit in their rules on what companies can (and cannot) do with cash,' he said.
ADVERTISEMENT Though firmly against most firms converting cash to crypto, Damodaran outlined four carveouts where holding Bitcoin might be justifiable, albeit with strong governance and transparency:'The Bitcoin Savant': A company led by a CEO trusted for their trading acumen, like MicroStrategy's Michael Saylor, may earn shareholder buy-in to speculate with cash.
ADVERTISEMENT 'The Bitcoin Business': For companies like Coinbase or PayPal, which handle Bitcoin as part of their operations, it can make sense to hold the asset as working capital.'The Bitcoin Escape Artist': Firms in countries with failed fiat currencies, such as Argentina, might rationally prefer Bitcoin over unstable local currencies.'The Bitcoin Meme': Companies like AMC or GameStop, whose stock prices are driven more by trading momentum than business fundamentals, may choose to amplify that volatility.
ADVERTISEMENT Even in these cases, Damodaran called for 'shareholder buy-in,' 'transparency about Bitcoin transactions/holdings,' and 'clear mark-to-market rules.'
Damodaran concluded by cautioning Bitcoin advocates who are eager to see institutional and corporate adoption. While more demand may boost prices in the short term, the longer-term costs could prove damaging. 'Adding these investors to the mix will put [Bitcoin's] volatility on steroids,' he warned, and 'may lead at least some of them to regret this push.' His final takeaway for companies considering a crypto pivot? No matter how bullish you are on Bitcoin, think twice before making it part of your corporate cash strategy.
Also read | I don't promote stocks, seek out investors: Aswath Damodaran
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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Explore courses from Top Institutes in Please select course: Select a Course Category Digital Marketing Others Project Management Cybersecurity Public Policy others Degree PGDM healthcare Product Management Data Analytics Operations Management Data Science Management MCA Data Science CXO Finance Technology Design Thinking Leadership Healthcare MBA Artificial Intelligence Skills you'll gain: Digital Marketing Strategy Search Engine Optimization (SEO) & Content Marketing Social Media Marketing & Advertising Data Analytics & Measurement Duration: 24 Weeks Indian School of Business Professional Certificate Programme in Digital Marketing Starts on Jun 26, 2024 Get Details Skills you'll gain: Digital Marketing Strategies Customer Journey Mapping Paid Advertising Campaign Management Emerging Technologies in Digital Marketing Duration: 12 Weeks Indian School of Business Digital Marketing and Analytics Starts on May 14, 2024 Get Details When thieves start forming organised gangs to steal coconuts from trees, you know something has gone wrong with the commodity market. In Kerala, a coconut that once cost Rs 25 now commands Rs 77— an over 200% price jump that has turned the state's most essential ingredient into an object of desire, desperation and even crime. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Do you have a mouse? Desert Order Undo Within six months, retail prices of coconut oil have rocketed from Rs 200 a litre to about Rs 400 and Rs 500-750 in the case of premium brands — an increase that has left the state's food industry and consumers reeling. That's a bull run like Bitcoin, but unlike the abstract financial instrument, people need this stuff to eat. On a coast where coconut oil isn't just a cooking medium but cultural identity, the price explosion has created chaos that would be comedic if it weren't so economically devastating. Memes flood social media showing people fainting upon hearing coconut prices , while others joke about storing coconuts in bank lockers alongside jewellery and cash. The humour took a dark turn when dawn raids by coconut thieves became so common that farmers have formed vigilante committees to protect their groves. Live Events WHAT COCONUT! Coconut is central to Malayali life. Unlike in other Indian states where multiple cooking oils compete, Kerala's culinary identity revolves around the coconut palm. 'Look at a typical Kerala meal,' says Jayapal. 'Rice with sambar, fish curry, vegetable thoran, chicken fry, or even beef roast and parotta — nearly every dish uses coconut meat, coconut milk, or coconut oil.' The local saying 'enth thengayaanu' (what coconut)— an expression of exasperation that literally references coconuts—has never felt more appropriate. From his Ernakulam-based mill, which makes the Keradhara brand coconut oil, Venugopal PP stares at storage tanks that once held thousands of litres. His operation, like that of many local oil producers across Kerala, faces an existential threat. 'We used to get copra—dried coconut meat— for Rs 100-120 per kilo,' he says. 'Now it's Rs 280-300, when we can find it at all.' Venugopal needs 6-7 kg of copra to produce 1 litre of oil. At current prices, the raw material cost alone is Rs 1,620-1,960 per litre, before factoring in processing and labour charges and profit margins. Small wonder that premium, branded coconut oil now retails for Rs 770 per litre at supermarkets, if you can find it. 'Only giants like Marico can survive this,' sighs Venugopal, referring to the consumer goods corporation behind the Parachute coconut oil. 'They buy in enormous bulk and maintain huge inventories that can weather crises like this. Many local producers are getting squeezed out of the traditional business.' The ripple effects cascade through Kerala's food ecosystem like a dropped coconut shattering on concrete. A medium-sized restaurant that once used 30 coconuts daily — some establishments use up to 100 — agonises over every kernel. Even small eateries cough up Rs 2,000 more every day, according to Jayapal, while larger establishments bleed Rs 5,000-6,000 daily. The crisis couldn't have come at a more brutal time. Already reeling from post-pandemic revenue drops and inflation squeezing customers' wallets, restaurants now face impossible arithmetic. Raise prices and they lose price-sensitive daily wage workers who depend on affordable meals. Keep prices stable and their profit margins will evaporate. 'We are trapped,' sighs a restaurant owner in Thiruvananthapuram, who serves Rs 80 biryanis daily to office workers. 'If I increase prices, my customers will just walk 50 metres to the next restaurant. These are daily wage workers and office employees— they can't afford luxury. But I can't keep absorbing these costs either. Some days I wonder if I should just close down.' The desperation has forced creative adaptations. Some restaurants advertise 'limited coconut oil preparation' as a selling point to justify higher prices. Others have switched to cheaper oils for certain dishes, though food safety departments have started warning about the use of adulterated oils. A few establishments charge separately for coconut-based gravies—treating it like a premium add-on rather than a standard component. In Vadakara, Kozhikode, seasoned copra trader Suresh Babu explains the supply-side nightmare from his modest trading office surrounded by empty warehouses. 'Domestic production has crashed,' he says. 'First, Indonesia saw its output decline, so they started buying from us. Then our own production started falling. This year everything converged.' Babu, who has traded copra for over two decades, has never seen anything like the current shortage. 'The good-quality copra we used to get has become impossible to source,' he says. He suspects some traders are exploiting the crisis. 'People are buying coconuts from here and selling them abroad at inflated prices. Some are making extra profit from the shortage.' WHY ARE PRICES CLIMBING? Kerala's coconut production follows a seasonal rhythm: peak harvest from December to June, followed by high demand from July to December when festivals like Onam drive consumption. This year, when demand has peaked for the festival season, supply has hit rock bottom. Recent reports indicate coconut production has dropped by more than 40% this year, with the Coconut Development Board noting a 50% decline over the past decade, with climate change identified as the primary culprit. Saju K Surendran, chairman of Kerafed, Kerala's apex coconut cooperative, explains the temperature impact: 'If temperature goes above a certain range when coconuts are forming, it affects yield,' says Surendran, whose organisation handles 14,000 tonnes of Kerala's coconut oil production annually. 'Climate change is slowly affecting every commodity, but coconut got hit first and hardest.' Meanwhile, in Tamil Nadu's copra-producing regions near Coimbatore, unprecedented rains ruined quality copra for the first time in six decades. 'Proper copra requires moisture content below 6%, which is impossible when traditional drying areas face unexpected deluges,' says Surendran. But nature only tells part of the story. Decades of farmer neglect created conditions for this crisis. When coconut prices were Rs 20-25 for years, well below the minimum support price of Rs 34, says Surendran, many farmers abandoned proper tree care. Pest control declined, nutrient management stopped, and manjappu (yellowing disease) spread through neglected groves. Coconut palms show the cumulative effects of neglect only after five-six years. 'We stopped treating coconut farming seriously,' says Surendran. 'For too long, average prices were too low to justify intensive care. The cumulative effect comes later.' Urbanisation also accelerated the decline. Kerala's coconut-growing area shrank from 10 lakh hectares to 7.5 lakh hectares in two decades, according to the Coconut Development Board. 'Young people prefer five-cent plots for modern homes to maintaining 1-acre ancestral compounds with coconut palms,' Surendran observes. The shortage has spawned unexpected consequences. Real estate prices of coconut farms have skyrocketed as investors from Tamil Nadu and Karnataka scout for agricultural land in Kerala. Suddenly, almost-abandoned coconut groves have become investment properties. Local newspapers report multiple thefts of the suddenly precious fruit. In Palakkad's Elappully panchayat, one of Kerala's largest coconut-farming regions, at least 30 farmers complained of theft in a single month. Thieves strike at dawn, breaking locks and stealing up to 200 coconuts at a time, not just taking harvested coconuts but climbing trees to pluck fresh ones. In districts like Kozhikode and Malappuram, farmers have formed vigilante committees against these agricultural pirates, pooling resources for CCTV cameras and coordinated sur- veillance. Farmers around Kuttiady— dubbed the state's coconut capital— have formed action committees monitoring the fields. GLOBAL GLUGGING Global markets are compounding Kerala's pain. Increased demand from China has reportedly led to significant coconut exports from Tamil Nadu, reducing the supply available for Kerala's domestic processing needs. Virgin coconut oil exports to healthconscious American and European consumers, who have embraced coconut oil as a superfood, compete with domestic demand. Kerala produces less than 2% of global coconut oil by volume, according to Surendran, but international demand still affects local availability. At supermarket chains, managers stock coconut oil like a luxury good rather than an everyday commodity. Oil companies like Keradhara report sales dropping by 50% as consumers stretch usage by buying 500 ml instead of 1 litre, or switch to alternatives like rice bran oil which, they sigh, rob the food of its traditional flavour. The crisis exposes Kerala's coconut dependency. The state consumes 3 lakh tonnes of India's annual production of 5.5 lakh tonnes of coconut oil— more than half the national output is devoured by just 3% of the country's population. The crisis extends beyond home kitchens. At Thiruvananthapuram's Pazhavangadi Ganapathy Temple, where thousands of coconuts are offered daily, coconut offerings have reportedly dropped by nearly 30%. Many temples have posted notices announcing fee hikes for coconut-breaking rituals. Temple managements struggle to keep lamps burning. Vendors are refusing to supply coconut oil at earlier contract prices, forcing temples to pay premium rates. The timing couldn't be worse — the Karkidaka Pooja at Sabarimala has begun and pilgrims typically carry multiple coconuts as offerings. 'This commodity has become more precious than gold,' says Surendran, noting that coconut oil prices rose 110% in six months while gold managed barely 15%. Relief may come by October, when fresh harvest traditionally stabilises supply. The July production has already shown marginal improvement, and industry players expect prices to moderate when Onam festival demand in August subsides and the new crop arrives. Until then, Kerala remains trapped in its coconut conundrum. The bitter irony runs deep for a state whose very name derives from 'kera,' the Malayalam word for coconut. The land that literally means 'the place of coconuts' now finds itself rationing its namesake fruit, watching helplessly as global markets and climate chaos conspire against what once seemed as reliable as the monsoon. The reversal of fortunes isn't lost on people like Surendran as they survey empty storage facilities. 'Farmers are the only ones really happy,' he notes. After decades of selling coconuts for Rs 25 and struggling to make ends meet, they are finally getting Rs 77 per coconut. The world has indeed turned on its head: Malayalis are struggling to afford parotta and beef roasted in coconut oil even as Americans liberally drizzle it over their salads. What coconut! The writer is a Kerala-based journalist
