Coffee Shops Buying Bitcoin? A Terrible Idea. – CoffeeTalk

Economist Carlota Perez once described the peak frenzy of boom-and-bust investing cycles as the moment when capital gains are copied and pasted, with financiers indulging in “the intense repetition of the same successful recipe” — from building canals to launching dot-com startups. It rarely ends well either. The latest froth on financial markets is characterized by companies that tap capital markets for cash, use that cash to buy cryptocurrency, watch their shares rise, and do the whole thing again. What began with Michael Saylor’s MicroStrategy Inc. (now just “Strategy”), a software company valued at more than 200 times revenue because of the 597,625 Bitcoin ($64.8 billion) it owns, has now gone viral as hundreds of new and existing businesses build their own cryptocurrency stash.

The froth is real, as shares of Spanish small-cap Vanadi Coffee SA have doubled since it announced its first Bitcoin buy in May, a venture with little connection to its unprofitable core cafe business. The company’s latest filing reports a holding of 69 Bitcoin with a longer-term target of 10,000, a strategy explicitly modeled on firms like Saylor’s Strategy and Tokyo-listed Metaplanet Inc., with Vanadi pointing out that those companies’ own pursuit of “asset diversification” has delivered premium valuations.

Diversification or speculation? Corporate treasury investments in crypto are generating market froth. Most corporate treasurers are a risk-averse lot; their idea of managing cash doesn’t usually involve buying volatile tokens that are neither useful for paying wages nor selling wares. These “treasury companies” look more like the latest rinse-and-repeat crypto grift, similar to initial coin offerings a decade ago and nonfungible tokens five years ago, which attracted players wielding increasing amounts of leverage until the inevitable crash.

New arrivals are already moving up the speculation chain: BitMine Immersion Technologies Inc. saw its stock surge more than 3,000% after shifting into Ethereum. If there is investor demand for exposure to crypto vehicles, it only makes sense for more players to hop aboard the bandwagon and offer supply to match. Even if the music stops soon, it will stop without having swept up big blue-chip firms like Microsoft Corp., whose shareholders recently rejected a proposal to add Bitcoin to its balance sheet.

There are risks that deserve more than a shrug and an eye roll. One is that this could turn a crypto selloff into a crash. Weak, indebted companies stuffed with overpriced tokens could create a wave of forced selling. The crypto-speculation complex is also pushing to embed itself in the TradFi system with banking license applications, which could make those waves worse.

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