Accumulating bitcoin a risky digital rush by companies?
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US President Donald Trump 's media group and Tesla, the electric carmaker owned by tech billionaire Elon Musk, are among an increasing number of companies buying huge amounts of bitcoin.The aim? To diversify reserves, counter inflation and attract investors, analysts say.Companies frequently own bitcoin -- the largest cryptocurrency by market capitalisation -- to take part in sector activities such as "mining", which refers to the process of validating transactions in exchange for digital tokens.Tesla has previously accepted payments in bitcoin, while Trump Media soon plans to offer crypto investment products.Other players who had core operations totally unrelated to cryptocurrency, such as Japanese hotel business MetaPlanet, have switched to buying bitcoin.US firm Strategy, initially a seller of software under the name MicroStrategy, holds more than three percent of all bitcoin tokens, or over 600,000.Its co-founder Michael Saylor "created real value for its original set of investors" by offering the opportunity to invest in shares linked to cryptocurrencies, Andy Constan, chief executive of financial analysts Damped Spring Advisors, told AFP.This was five years ago when other financial products allowing investment in cryptocurrencies, without a need to directly own tokens, were not permitted.Companies collect bitcoins "to diversify" their cash flow and "counter the effects of inflation", said Eric Benoist, a tech and data research expert for Natixis bank.Some struggling companies are riding the trend in a bid to "restore their image" by "backing themselves with an asset perceived as solid and one that appreciates over time", he added.Strategy's current focus is on accumulating bitcoin, simply to attract investors interested in the currency's potential.Bitcoin can also have a simple practical use, as in the case of the Coinbase exchange, which uses its own reserves as collateral for its users.Bitcoin's value has soared around ninefold in five years, fuelled recently by US regulatory changes under Trump, a strong backer of the crypto sector.However, the unit's volatility is four times greater than that of the main US stock index, the S&P 500, according to Campbell Harvey, a professor of finance at Duke University in the United States.Harvey warns against using a company's cash reserves, "their safe haven", to buy crypto.Bitcoin's price, currently around $117,000, has in recent years been boosted by large holders of cryptocurrency, referred to as "whales".Harvey argues that in the case of "major buyer" Strategy, liquidating all their 600,000 bitcoin tokens is no simple task owing to the high value."Assuming that you could liquidate all of those bitcoin at the market price is a heroic assumption," he told AFP, adding such a deal would see the cryptocurrency's price plummet.Jack Mallers, chief executive and co-founder of bitcoin-focused company Twenty One Capital, said his business embraced the sector's volatility, adding the market would need to be flooded for the token's price to crash.According to its own calculation, Strategy's stock is selling at about 70 percent above the value of its bitcoin reserves.The company -- which did not answer AFP's request for comment -- is growing thanks to bitcoin purchases, which in turn is attracting investors and pushing up its share price.But ultimately it will need to monetise these crypto assets, for example by linking them to financial products, for its business to be sustained.Should Strategy and other so-called " bitcoin treasury funds " fail to do so, Benoist fears the crypto investment bubble will burst.He points out that the strategy of accumulation runs counter to the original philosophy of bitcoin, which was conceived in 2008 as a decentralised means of payment.Today, "bitcoins end up in electronic safes that are left untouched", he said.
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Further assuming a -1 price elasticity, we estimate drag from the proposed tariffs that is 25 per cent effective from today and an additional 25 per cent effective from August 27 versus our current baseline to be 35 basis points (bps) in 2025-26 and 60 bps in 2026-27. We would stress that our estimates are subject to substantial uncertainty as the trade negotiations with the US are ongoing. In addition, other considerations for our growth forecast include how global growth pans out and if counter-cyclical policy support could help support domestic demand momentum in the face of tariff-related uncertainties. These are just scenarios that we have. We are not yet changing our estimates as a lot will depend on how the negotiations happen over the coming weeks and months. So, the exports at risk from the tariffs are roughly $56 billion or so. Do you have an estimate of how much that could fall by if the 50 per cent tariff stays in place? 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But the UBS global energy team has also pointed out that the crude market is only partially pricing supply disruption due to tariff pressures on India. So, it could temporarily drive crude prices above $70 a barrel. But if there is sufficient surplus and OPEC spare capacity, it can definitely cap the upside in prices. There is now a pressure to finish trade deals quickly. Is there anything to be worried about in terms of these deals resulting in India giving up too much during negotiations or not extracting as favourable terms as it could have otherwise? To be fair, India was the first country to come to the table to negotiate with the US and we are still there right now. So, it seems that India is trying to prioritise national interest and it is not in any rush to finish a trade deal quickly. The hope is that we are able to find a balanced deal between India and the US which works to both the countries' benefit. RBI's Monetary Policy Committee stayed put on the repo rate, but you now expect an additional 25 bps rate cut in October given the uncertainty caused by the tariffs. How does one understand this additional easing given that the central bank's latest forecast puts headline retail inflation at 4.9 per cent in April-June 2026? Our inflation forecast for 2025-26 — even before the Reserve Bank of India lowered their estimate by 60 bps to 3.1 per cent — was tracking close to 3 per cent with more downside risk. This is supported by good agricultural output, favourable monsoon, and the lower global crude oil prices. The offloading of excess China capacity in India at cheaper prices could result in a disinflationary impulse. Overlaying this disinflationary impulse with RBI's neutral policy rate assumption of 1.4-1.9 per cent, we see space for the terminal repo rate to fall towards 5-5.25 per cent range. For now, we add one 25 bps rate cut in the October meeting to our baseline, with risk of another (rate cut) if growth surprises lower, driven by US trade tariffs and/or a step shift lower in global growth. Yes, the one-year forward inflation of 4.9 per cent looks very high because of the base effect. But I would expect the new CPI inflation series, which will likely be launched early next year, to streamline that one-year forward inflation forecast. At this point, we think the RBI has kept some ammunition in the form of monetary easing support in case growth risks are skewed towards the downside. The RBI has maintained its 2025-26 GDP growth forecast at 6.5 per cent despite the global uncertainty, although it did trim it back in April by 20 bps from 6.7 per cent. Is the RBI possibly underestimating the hit to growth — not just from the tariffs themselves but also the adverse impact on corporate sentiment from the uncertainty? I would give the RBI some benefit of doubt because the MPC meeting took place before the additional 25 per cent tariff was announced. If we only incorporate the 25 per cent tariff that was in place before the additional tariff got announced after the RBI policy, the downside risk to GDP growth in real terms for 2025-26 was only coming to around 10-15 bps, as per our estimates. You recently launched your rural and urban economic activity indicators, where you said household consumption recovery is expected to become broad-based over the next 2-3 quarters backed by RBI's rate cuts, softer inflation, good monsoon, and income tax relief, among other factors. Will this recovery sustain without an appreciable rise in actual income levels? The UBS India Composite Economic Indicator, our leading indicator with 15 high-frequency data points, suggests economic momentum softened in May. This is in line with our global growth nowcast which suggests that tariffs and global uncertainty dragged growth sharply in May after a resilient April, helped by US tariff front-loading including improved demand, production, and trade. Our activity indicators suggest rural activity improved, while urban activity remained subdued in the June quarter. We note that rural accounts for 46 per cent share of total consumption. Even as rural activity is gaining traction, we believe it is still too early to expect a broad-based recovery in household consumption as urban activity continues to soften. One of the factors supporting our view that household consumption could be the bright spot in 2025-26/2026-27 was urban demand will stabilise on monetary transmission, lower inflation, and policy stimulus from income tax relief and likely fuel price cuts. We were also expecting a pay boost under the pay commission. However, implementation of the Eighth Central Pay Commission seems likely to be delayed to early 2027. While consumption will be growth-supportive, we are not expecting a broad-based household consumption recovery anytime soon. Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy. ... Read More
