Bitcoin on balance sheet attracts negative attention from anti-crypto banks

The upcoming acquisition of bitcoin MicroStrategy has drawn the ire of investment banking giant HSBC. Despite being one of the world’s largest market intelligence companies, HSBC says MicroStrategy’s impressive track record on bitcoin (BTC) currently gives it the status of pseudo bitcoin exchange traded fund.

In August 2020, MicroStrategy began purchasing bitcoins and now owns over $5 billion in BTC. Michael Saylor, the company’s CEO, has also become an outspoken supporter of bitcoin. As part of his bitcoin evangelism, Saylor has tried to encourage other publicly traded companies to include bitcoin on their balance sheets. In fact, other U.S. companies are following Saylor’s hypothesis.

As bitcoin has become commonplace among companies, the conversation seems to be moving to life insurance and pension companies and sovereign wealth funds to see where the next wave of institutional bitcoin investments will emerge. Nevertheless, bitcoin and cryptocurrencies in general remain anathema to players like HSBC, even if the actions taken so far seem controversial.

HSBC MicroStrategy Blacklist

HSBC has blacklisted MicroStrategy’s shares and prevented customers of the online retail banking platform in Canada from buying shares in the company. While HSBC did not respond to Cointelegraph’s request to confirm the report, the bank publicly confirmed the news with similar statements in the original message provided to customers on Twitter.

In a message to HSBC InvestDirect customers who already own MicroStrategy (MSTR) shares, the bank said it will no longer be possible to buy additional MSTR shares on the platform. The announcement stated that these customers could keep their current MicroStrategy shares or sell their shares.

According to HSBC, the blacklist is in line with the bank’s crypto restrictions, which were introduced in 2018. An excerpt from the Bank’s policy contained in the HSBC InvestDirect, or HIDC, communication to customers reads as follows: HIDC is not engaged in the brokerage (purchase and/or exchange) of products related to virtual currency or products related to or associated with the operation of virtual currency.

Reacting to the news, Stuart Hoegner, general counsel of cryptocurrency exchange Bitfinex, told Cointelegraph that the decision was a step backwards amid the growing appeal of cryptocurrencies to the general public, adding:

Instead of not participating in virtual currency products, HSBC should focus on providing optimal services to its customers, many of whom pay high fees and interest on the bank’s loans and credit cards. In fact, it is the potential of blockchain technology – by eliminating intermediaries – that can increase the engagement, accessibility and transparency of financial products.

All clear

HSBC described MicroStrategy as a virtual currency product, and therefore did not authorize the purchase of MSTRs. However, HDIC lists the shares of several companies that own major cryptocurrencies, including Tesla, Square and Hut 8 Mining, to name a few.

Tesla, Elon Musk’s electric car giant, bought about $1.5 billion worth of bitcoins in February. Hut 8 is a bitcoin miner, while Square operates the Cash app, a way to buy BTC that also contributes significantly to Square’s bottom line.

Unlike MicroStrategy, which only has bitcoins on its balance sheet while performing its function as a business intelligence firm, some of the shares traded on the HDIC platform are owned by companies like Hut 8 that derive their value directly from cryptocurrencies.

Jeffrey Wang, head of the US office of crypto finance company Amber Group, commented to Cointelegraph on HSBC’s unclear decision: This is a very slippery slope for HSBC. Do they publish a clearly defined set of rules for companies that they believe will benefit from virtual currencies?

He asked further: Why haven’t they imposed this trade restriction on other companies that have made their bitcoin holdings public, like Tesla? Are they blocking exchanges on Coinbase? As a client of HDIC, Wang also expressed her dissatisfaction with the uneven application of HSBC’s anti-crypto policy, adding:

I think HSBC has gone too far with their retail brokerage offerings. If a company is legally listed on Nasdaq and meets all legal requirements, the decision to buy that stock should be left to the end user, not the broker.

HSBC’s ban on trading MicroStrategy shares becomes even stranger when you consider that customers can still buy exchange traded funds with MSTRs on the platform. It really is. 88 ETFs own shares of MicroStrategy, according to ETF.com.

MSTR’s blacklisting is not the first negative consequence of MicroStrategy’s investment in bitcoin. Citibank downgraded the company’s stock in December 2020, referring to MicroStrategy’s disproportionate stake in BTC.

New levels of legitimacy

HSBC’s actions put the bank in a corner with traditional financial institutions that still refuse to accept bitcoin and cryptocurrency innovations. The move is the latest sign that the bank is distancing itself from digital currencies, after it tried earlier this year to prevent customers from repatriating profits from crypto currency exchanges to their bank accounts.

At the same time, several major players in traditional finance are increasingly embracing bitcoin and cryptocurrencies as the new technologies gain legitimacy. From offering digital currency storage services to creating digital platforms for asset exchange, banks in the US, Europe and Asia are increasingly interested in digital currencies.

Amber Group’s Wang says HSBC is clinging to its declining position as a banking institution that remains immune to cryptocurrencies, reports Cointelegraph :

I think HSBC will be among the small minority – if not the only broker – to advise its retail investors against buying shares in listed and regulated companies because of the impact of virtual currencies.

European investment banking giant Societe Generale recently issued a tokenized security representing one of its structured products – investment packages linked to assets and derivatives – on the Tezos blockchain. This is the third consecutive release of a blockchain-related financial product.

In a note to Cointelegraph, Jean-Marc Stenger, managing director of digital capital markets at Societe Generale and head of SG Forge’s tech startup subsidiary, noted that cryptocurrency companies will challenge long-established financial firms that have been slow to adapt to the emerging digital financial landscape. Rather than advocating the abandonment of digital assets, Stenger pointed out the benefits of traditional finance in tokenizing real assets:

Traditional financial institutions know how to structure regulated digital assets and deal with the associated requirements (investor protection, market integrity rules, compliance, KYC, continuity plans). Most importantly, they are able to create and distribute products, and maintain day-to-day business relationships with their customers.

Although Societe Generale’s digital asset offering is not linked to cryptocurrencies, major US investment banks such as Goldman Sachs and Morgan Stanley are looking to offer their clients access to bitcoin funds.

With the continued influx of institutional players into the Bitcoin space, the question of whether governments will invest in BTC will likely be a matter of when, not if. Now that insurance companies and pension funds have jumped on the bitcoin bandwagon, sovereign wealth funds are not far behind.

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