Title: "With major companies like Twitter, Tesla, and PayPal entering the market, is it just a short-term hype or a long-term strategy?"

Author: Liang Wenhui

Recently, several well-known companies have announced their plans in the cryptocurrency market.

Among them, VISA publicly disclosed its investment in CryptoPunk, with plans to buy more NFTs in the future; on the other hand, Meitu's Q2 financial report showed a loss of up to 100 million RMB in crypto investments, mainly due to the decline in Bitcoin prices; just today, Twitter also announced the launch of Bitcoin-based payment features, including support for the Lightning Network.

As more and more giants enter the cryptocurrency market, a new wave of global asset restructuring will be set in motion, presenting both opportunities and risks. Which other companies have joined this new "Colosseum" of assets, how are they positioning themselves, and what underlying logic is hidden behind? This article provides some insights.

The unbearable low returns of fixed income, actively allocating high-risk assets

Return on investment is one of the most important indicators for publicly traded companies, and many deployments revolve around the goal of maximizing profits. Therefore, even if they have many reasons to enter the cryptocurrency market, the underlying motivation is likely to be optimizing financial performance.

In the past two years, the performance of the US dollar has been widely recognized as weak, coupled with low interest rates, the returns on 10-year treasury bonds and fixed income products have been too low. Many US companies have cautiously allocated a certain proportion of Bitcoin to enhance cash yield.

VISA

VISA's main business is payment settlement, but its activities in the cryptocurrency market are becoming increasingly active. Not long ago, it purchased NFT number 7610 in CryptoPunk for about $150,000.

As a publicly traded company, it cannot deviate from its core business, and it must also comply with regulatory requirements, meaning that the proportion of high-risk investments must be kept at a low level. Therefore, $150,000 accounts for less than one-thousandth of VISA's external trading investment scale.

However, the NFT art market remains active, with a considerable asset premium space.

MicroStrategy

MicroStrategy began purchasing Bitcoin in August 2020, and by March 2021, it had invested nearly $2.211 billion, with an average cost of only $15,964 per Bitcoin. To implement its Bitcoin acquisition plan, it has almost gone all in.

Additionally, it issued $1.65 billion in priority convertible bonds, with annual interest payments of about $4 million, which is quite a burden.

Meitu

Similar to MicroStrategy, Meitu's scale of investment in cryptocurrencies is also akin to a gamble. As of the release date of its mid-2021 financial report, Meitu held Bitcoin and Ethereum worth $32.2 million and $65.2 million, respectively.

In fact, the total amount of crypto assets held by Meitu is already equivalent to its total revenue last year.

Meitu clearly did not seize the right timing for its purchases, having already confirmed a depreciation of BTC by 111.9 million RMB in the first half of the year. Although ETH appreciated by 94.9 million RMB, it cannot yet be recognized as income according to accounting standards. However, the parent company must be particularly cautious in allocating Bitcoin, not only needing a strategy but also acting within its means.

First, it cannot be seen as deviating from its core business. As mentioned earlier, MicroStrategy was downgraded to "sell" by Citibank due to its BTC plan, citing "excessive focus" on BTC. MicroStrategy's investment in BTC is clearly aimed at the long term, as it has dedicated a section on its homepage to BTC, filled with positive content about it.

Such a "blatant" investment in a "trading financial asset" is bound to raise controversy.

Source: MicroStrategy official website

Second, it cannot over-purchase. Many publicly traded companies have sold BTC, but MicroStrategy is the only one that issued convertible bonds specifically for it, and the amount is particularly large—$1.65 billion, equivalent to its total revenue over four years.

Issuing bonds sends two signals: one is that financial expenses have increased, which will inevitably affect profits, something shareholders dislike; the other is the risk of debt default. If MS unfortunately enters bankruptcy proceedings, the assets that can be used to repay debts will prioritize creditors, which shareholders would prefer to avoid.

This helps explain why so many publicly traded companies have purchased BTC, yet only MicroStrategy was downgraded. However, the fact proves that the downgrade did not affect investors' judgment, as MicroStrategy's stock price has more than doubled compared to December last year.

Buying Bitcoin is not about optimism; arbitrage is the goal

Tesla

Warren Buffett once said, "Be fearful when others are greedy, and be greedy when others are fearful." If one is adept at manipulating market sentiment, sometimes reverse operations can yield arbitrage opportunities.

Bitcoin has always been the hottest keyword in the cryptocurrency market, being the most volatile asset class globally. Its short-term fluctuations are extremely sensitive to major positive or negative events and news. As a "pump-friendly" asset, those institutions with influence and financial strength can reasonably exploit the rules to profit.

Elon Musk capitalized on this by announcing that Tesla would accept Bitcoin payments from customers, successfully pushing Bitcoin's price to an ideal level, resulting in a significant premium on Tesla's Bitcoin holdings.

From any perspective, Musk is a globally influential figure, and his every move can impact the market. Thus, his collaboration with Bitcoin successfully tested whether the market would provide him with arbitrage opportunities as expected.

Direct investment in cryptocurrencies carries high risks; investing in potential projects awaits appreciation

It must be said that the market has high expectations for the economic value of blockchain and crypto assets, which to some extent has allowed both primary and secondary markets to gain premiums. Many concept stocks and projects labeled as related have received higher valuations.

Because there is a consensus in society about the role of innovation in driving economic development. Many teams in the market are attempting to create blockbuster products in the field of distributed technology and crypto assets. If investors can invest in high-quality projects in the early stages, the potential returns could be astonishing. Well-funded institutions will certainly not miss such a good opportunity.

Goldman Sachs

In May this year, Goldman Sachs co-led an investment in Coin Metrics, raising a total of $15 million for the company. Data analysis in the crypto market has a very broad market prospect, as investors' trading strategies, institutional layouts, and even policymakers in monetary policy all require data analysis as a basis; otherwise, they cannot measure the complete impact of the crypto market on the economic ecosystem.

Therefore, in addition to Coin Metrics, projects like Messari and CoinMarketCap, which can integrate crypto ecosystem data, are highly favored by investors. Besides Coin Metrics, Goldman Sachs has also invested in seven other projects, participating in the early-stage investments of several crypto projects.

Samsung

In April 2019, Samsung invested about $2.9 million in the French cold wallet unicorn Ledger, which had a valuation of about $290 million at the time. By July 2021, Ledger's valuation had reached $1.5 billion.

Ledger's status in France is well-known when it comes to crypto storage, much like how BYD is the first name that comes to mind when discussing new energy vehicles in China. Ledger's success means that Samsung's investment returns have at least multiplied by five.

Leveraging the NFT craze to maximize brand marketing effects

No one can deny that NFTs have become a trend, and attaching the NFT label can increase brand visibility. Additionally, many experts believe that NFTs are an ideal distribution channel and can serve as a standalone distribution medium.

Many well-known brands have actively issued native NFTs, with the most typical approach being to launch them in conjunction with mobile games. Once a distribution channel is formed, the advantages are evident: lower operational costs and customer acquisition costs.

LV

To celebrate its 200th anniversary, LV launched "Louis The Game," which received a positive response, accumulating over 500,000 downloads in the first week.

Other luxury brands have adopted similar strategies, with Burberry, Gucci, and RIMOWA successively launching their first NFT works.

Why are luxury brands collectively engaging in NFTs? Because, at their core, NFTs and luxury goods are the same.

• Uniqueness and scarcity: This is what NFTs emphasize, aligning almost perfectly with the culture and product philosophy of luxury goods.
• Collectible value: The valuation or pricing logic behind NFTs and luxury goods is similar, based on cultural recognition and aesthetic pursuit.

The initial auction price of "CryptoPunk 3100" was $90.5 million. The reason it could command such a high price is not due to the trading platform behind it or the encryption technology used, but because of its recognized artistic value and the cultural recognition behind it, which together confer market value.

This is akin to Hermès' Birkin bag, which is a scarce resource in France; even the wealthy cannot buy it. The reason such a seller's market can form is due to its widespread cultural recognition. Thus, NFTs are essentially digital art and luxury goods, and introducing NFTs actually reinforces these brands' value in consumers' minds.

Solving the security storage problem of crypto assets, terminal sales

In fact, the cryptocurrency market is still in a period of dividends, especially in terms of infrastructure, as tech giants are all targeting this track by launching more competitive enterprise-level and personal user-level solutions to capture market share.

Samsung

As an established mobile phone giant, Samsung recognized the demand for cold storage among cryptocurrency users earlier than other phone brands.

Aiming to enhance the security level of crypto asset storage, Samsung launched its first phone with cold wallet functionality—the Galaxy S10—in February 2019. It features the Samsung Blockchain Wallet, which can store private keys for blockchain applications and also supports developers in creating crypto hardware wallets.

Samsung's layout has undoubtedly successfully attracted more users from the cryptocurrency market. As global competition among mobile devices intensifies, extending its target market to cryptocurrency users is a very wise and market-responsive strategy.

User cultivation plan, building a payment system within its own ecosystem

Facebook

In the IT industry, there are always some "long-termists" in cryptocurrency, such as Facebook, which has repeatedly tried to launch crypto asset products despite facing failures.

After the failure of Libra, Facebook has recently returned to the public eye with its Novi wallet. Novi is positioned as an electronic wallet that allows zero-fee and real-time transfers or payments through chat applications (WhatsApp and Messenger), similar to the embedded payment function in WeChat.

In Facebook's ecosystem, the value of active users (1.8 billion daily active users) has not been fully developed. If it can cultivate the habit of using Novi for daily payments and transfers among its vast user base, the potential value is enormous. Perhaps seeing the success of Ant Group, Facebook has realized the economic value that user stickiness can bring.

Although Facebook belongs to the category of companies that are "too big to fail," its revenue model still primarily relies on advertising income (Attention-based model), which is not diversified enough. Moreover, in the long run, a single revenue model poses a risk.

Thus, Novi has become an important initiative for Facebook to further explore user value and increase monetization methods, which is not surprising. However, whether Novi can succeed still depends on whether the Diem coin can pass regulatory scrutiny.

PayPal

People always expect cryptocurrencies to disrupt the payment field, but very few mainstream payment institutions participate directly. After PayPal announced the provision of trading services for mainstream coins, the first compliant payment institution allowing users to deposit cryptocurrencies finally emerged.

However, this service is currently only available in the UK market, and PayPal primarily conducts cryptocurrency transactions through Paxos, which has already obtained an operating license in New York. Additionally, it does not currently support withdrawals, meaning that cryptocurrencies can only be stored within the PayPal application and cannot be transferred out.

Although centralized systems currently have advantages in transaction speed, using crypto payments can reduce transaction fees. Merchants hope to one day lower the fees for credit transactions, which is something many high-volume settlement merchants desire.

Therefore, although there are many restrictions on directly operating cryptocurrency trading businesses, Facebook, PayPal, and several traditional large companies are still actively laying out their strategies, demonstrating their determination to bring cryptocurrencies into the mainstream market.

The volatility effect of Bitcoin, investment banks acting as intermediaries

There exists a group of high-net-worth individuals in the market: they find betting on BTC price fluctuations interesting and hope to profit from trading but lack in-depth knowledge of crypto assets and insufficient ability to manage investment risks. For this type of investor, structured products provided by professional institutions can meet their specific needs.

JPMorgan Chase

Starting in April 2021, JPMorgan Chase began offering bundled fund trading services linked to Bitcoin for high-net-worth clients. In fact, the funds that JPMorgan Chase will provide do not have Bitcoin as the underlying asset; instead, they consist of investment notes made up of 11 stocks, with the investment returns at maturity entirely determined by the rise and fall of each stock.

Of course, these stocks are all companies actively investing in or laying out crypto assets, some of which have heavily invested in Bitcoin, like MicroStrategy, while others provide infrastructure, such as Riot (mining machines) and NVIDIA (chips).

Such structured products look like ETFs but are not. Because they only nominally hold positions and do not actually build positions for clients, they are essentially a mixed index trading note. This poses lower risks for investors, as the risks mainly lie in the operational results of these companies rather than the absolute trends of Bitcoin.

JPMorgan Chase's strategy is also very wise, as according to the specific regulations of this service, JPMorgan Chase has no actual holdings and only charges management fees based on the fund size and fees for closing positions at maturity, meaning there is no exposure risk.

Goldman Sachs

Goldman Sachs has been planning Bitcoin futures products since 2018, but perhaps due to regulatory pressures or the inability to find suitable partners, it wasn't until June this year that it was finalized. Goldman Sachs will provide clients with Bitcoin futures from the Chicago Exchange, with Galaxy Capital acting as the main market maker. In a heavily regulated environment, firms like Goldman Sachs typically avoid direct holdings.

Thus, these well-known investment banks, whether providing structured products or derivatives, especially those involving Bitcoin, essentially offer intermediary services. Their attitude towards entering the cryptocurrency space is: both greedy and cautious.

• Long-term high volatility: Investment banks tend to avoid direct holdings due to fears of volatility risk, but institutional investors and wealthy individual clients are willing to bet on price fluctuations.
• Terrifying market activity: The trading activity of Bitcoin is unparalleled, with daily trading volumes exceeding $20 billion, supported by tens of thousands of transactions daily. Thus, while the underlying asset carries significant risks, market activity and volatility create profit opportunities. Investment banks only need to launch suitable products and act as intermediaries to earn management fees from each investment.

Recognizing the identity information carrier characteristics of NFTs, focusing on copyright and traceability

In the field of copyright protection, NFTs represent the embodiment of justice. Because NFTs are virtual carriers of ownership and identity information, they are very suitable for solving pain points such as infringement and traceability difficulties.

Visual China

Visual China has long been a victim of infringement issues, but this is just the tip of the iceberg. In the future, blockchain-based NFTs are destined to become the backbone of solving this problem.

Visual China's solution is to implement a blockchain transformation for the 500px community: by granting proof of ownership of NFT digital art assets for photographic works, uniqueness is confirmed, and the difficulty of tampering is high, achieving the goal of copyright protection and allowing original assets to have a fairer valuation. From the perspective of collectible value, counterfeits and genuine products are vastly different, and plagiarized works should not have the same valuation as original works.

On the other hand, Visual China will launch NFT digital art trading services in the 500px community, aiming to genuinely enhance the monetization ability of on-chain art assets.

IBM

In April this year, IBM announced a partnership with IPwe to launch NFT trading tools for patents and copyrights. If Visual China primarily serves the C-end, then IBM's tool will be aimed at the B-end, addressing the long application and high costs associated with patent transactions, benefiting mainly small and medium-sized enterprises.

In fact, when IBM uses NFTs and other digital tools to solve these challenges, the intangible assets of enterprises are no longer illiquid and difficult to monetize "sleeping assets." Information related to patents or trade secrets can be transferred at low cost through knowledge licensing, achieving ownership or usage rights transfer.

Source: US Patent Certification Process

Conclusion

The entry of giants into the cryptocurrency market is a mutually reinforcing process, undoubtedly benefiting the continuation of the crypto bull market. It also sends a strong signal that the technology behind crypto assets is accelerating its application in the real economy. Cryptocurrencies have not yet been fully popularized in reducing payment rates, being used only among a limited circle of enterprises.

The benefits of NFTs in confirming rights have not been fully explored, except in extremely popular areas like art trading and gaming P2E. We believe that Bitcoin, NFTs, and other crypto assets have even broader applications.

Giants will not recklessly enter the market; based on thorough research, along with sufficient funds and influence, they will facilitate a healthy integration of the cryptocurrency market with the existing market.