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Having more than 90,000 BTC on the balance sheet can result in a company’s stock being blacklisted by banks that are still anti-crypto.
MicroStrategy’s persistent Bitcoin takeover has enraged investment banking behemoth HSBC. Despite being one of the world’s largest market intelligence companies, HSBC has declared MicroStrategy a “virtual currency product,” a distinction akin to the company’s pseudo-Bitcoin exchange-traded fund status due to its sizable Bitcoin (BTC) balance sheet.
MicroStrategy has been on a Bitcoin buying binge since August 2020, amassing more than $5 billion in BTC. Michael Saylor, the company’s CEO, has since been a vocal supporter of Bitcoin. Saylor’s Bitcoin evangelism has involved efforts to persuade other publicly traded companies to put BTC on their balance sheets. Indeed, several other firms in the United States have followed in Saylor’s footsteps in terms of Bitcoin acceptance.
With corporate Bitcoin adoption becoming more popular, the focus tends to be turning towards life and annuity firms and sovereign wealth funds as the next wave of institutional BTC investing emerges. However, for legacy players such as HSBC, Bitcoin and cryptocurrencies in general remain anathema, despite the fact that the actions taken thus far tend to be arbitrary.
HSBC blacklists MicroStrategy stock
MicroStrategy’s stock was blacklisted by HSBC, banning Canadian buyers of the bank’s online retail trading site from purchasing the company’s securities. Though HSBC did not respond to Cointelegraph’s request for comment on the story, the bank has publicly confirmed the news using related comments included in the original message posted by customers on Twitter.
The bank informed HSBC InvestDirect customers who already own MicroStrategy (MSTR) stock that additional MSTR transactions would no longer be available on the website. According to the announcement, such customers may keep their current MicroStrategy stock balances or sell their shares.
According to HSBC, the blacklisting was in accordance with the bank’s cryptocurrency prohibitions, which were implemented in 2018. According to an excerpt from the bank’s policy sent to HSBC InvestDirect, or HIDC, clients, “HIDC will not participate in facilitating (buy and/or exchange) product relating to virtual currencies, or products related to or referencing the performance of virtual currency.”
In response to the report, Stuart Hoegner, general counsel at crypto exchange platform Bitfinex, told Cointelegraph that the decision was a “regressive step” in light of the growing popular appeal of cryptocurrencies, adding:
“Instead of refusing to participate in products relating to virtual currencies, HSBC should instead focus on delivering optimal services to its customers, many of whom pay high fees and interest rate charges on the bank’s loans and credit card products. In fact, it is blockchain technology’s capacity — by virtue of removing intermediaries — that can enhance levels of inclusion, accessibility and transparency in financial products.”
Making sense of it all
HSBC referred to MicroStrategy as a “virtual currency product,” which led to its decision to exclude customers from purchasing MSTR. However, HDIC includes interests in a number of firms with major cryptocurrency participation, including Tesla, Square, and Hut 8 Mining, to name a few.
Tesla, Elon Musk’s autonomous car engineering conglomerate, purchased about $1.5 billion in Bitcoin in February. Hut 8 is a Bitcoin mining facility, while Square runs Cash App, a Bitcoin purchasing platform that also adds significantly to Square’s sales bottom line.
Unlike MicroStrategy, which only has Bitcoin on its balance sheet while continuing to operate as a market intelligence company, some of the tradable stocks on the HDIC website belong to firms who extract profit directly from cryptocurrencies, such as Hut 8.
In response to HSBC’s lack of transparency, Jeffrey Wang, head of Americas at crypto finance provider Amber Group, said, “It’s a very slippery slope for HSBC.” Can they issue a simple set of established guidelines for businesses that extract value from virtual currencies?”
He went on to ask, “Why haven’t they imposed this trading restriction on other companies that have publicly disclosed Bitcoin holdings, such as Tesla?” Can they halt Coinbase trading?” Wang, an HDIC client, also expressed dissatisfaction with HSBC’s inconsistent implementation of anti-crypto policies, adding:
“I think this is HSBC overstepping its reach on its retail brokerage offering. If a company is lawfully listed on the Nasdaq and is in compliance with any regulatory requirements, the decision to buy this stock should be left up to the end-user and not the brokerage.”
HSBC’s ban on MicroStrategy stock trading becomes even more bizarre, given that customers can still buy exchange-traded funds that contain MSTR on the platform. Indeed. According to ETF.com, 88 ETFs hold MicroStrategy shares.
The MSTR blacklisting is far from the first bad outcome of MicroStrategy’s Bitcoin investment drive. Citibank downgraded MicroStrategy’s shares in December 2020, noting the company’s “disproportionate” reliance on Bitcoin.
New layers of legitimacy
HSBC’s action puts the bank firmly in the corner of legacy financial institutions still averse to Bitcoin and cryptocurrency innovation. The move offers the latest indication of the bank’s repudiation of digital currencies following efforts to block customers from repatriating crypto trading profits from exchanges to their bank accounts earlier in the year.
Meanwhile, as the novel technology achieves new layers of credibility, many big players in conventional finance are being more vulnerable to Bitcoin and cryptocurrencies. Banks in the United States, Europe, and Asia are increasingly interested in digital currency, from providing custody services to developing digital asset trading platforms.
According to Amber Group’s Wang, HSBC is clinging to its dwindling status as a financial entity that remains averse to cryptocurrencies, telling Cointelegraph:
“I think HSBC will be in the tiny minority — if not the only brokerage — that will restrict its retail investors from buying shares in publicly traded and regulated companies due to exposure to virtual currencies.”
On the Tezos blockchain, the European investment banking behemoth Société Générale recently released a tokenized security representing one of its framework offerings — investment bundles connected to securities and derivatives. The announcement marked the third year in a row that a blockchain-related financial product has been released.
Jean-Marc Stenger, Société Générale’s managing director of digital capital markets and head of its fintech venture affiliate, SG Forge, told Cointelegraph that crypto firms will threaten legacy finance players who are slow to respond to the evolving digital financial environment. Rather than advocating for the abolition of intangible properties, Stenger highlighted the benefits of conventional finance through real-world asset-based tokenization, adding:
“Traditional financial institutions know how to structure regulated digital assets and how to cope with related requirements (investors protection, rules for markets integrity, compliance, KYC, continuity plans). But more importantly, they have origination and distribution capabilities and day-to-day business relationships with their clients.”
Although Société Générale’s digital asset services are unrelated to cryptocurrency, big US investment banks such as Goldman Sachs and Morgan Stanley are looking to provide their clients with access to Bitcoin assets.
With the continuing flood of financial players into the Bitcoin domain, the issue of whether governments can participate in BTC is likely to become one of “when,” rather than “if.” With insurance firms and hedge funds dipping their toes into the Bitcoin pool, it appears that sovereign wealth funds are not far away.