His startup, Goodfood Market Corp., had lost 98% of of its value from a Covid-era high, and was a mere penny stock in the cut-throat business of food delivery.
So this year, Ferrari hatched a new plan that he is convinced will turn Goodfood’s stock around: Buy Bitcoin.
“We have a nice core business but it’s too small to be relevant to the capital markets,” Ferrari, 36, said. “I think as we start investing more into our Bitcoin treasury strategy we’ll be able to create more liquidity in our stock and attract investors.”
Goodfood is one of the dozens of public companies — including a social-media company, a video game developer and a coal mining firm — that have been following in the footsteps of Michael Saylor’s Strategy by using corporate cash, and in some cases borrowed money, to buy Bitcoin. Even the board of Trump Media & Technology Group Corp. decided last month to allocate some of its cash to cryptocurrency investments.
While there’s nothing illegal about the practice, the purchases do raise questions about whether public companies should be in the business of speculative investing, given that the tokens generally become a part of their treasury holdings, which are usually reserved for cash and ultra-safe equivalents. There is also the matter of what happens to the underlying businesses, which often have nothing to do with Bitcoin, if the value of the token crashes yet again.
“If you buy things with debt and the price of those things go down and your debt comes due, you have a problem,” said Austin Campbell, a cryptocurrency consultant and former Wall Street trader who is an adjunct professor at NYU Stern School of Business.
Yet those sorts of concerns get pushed aside in the fads that periodically sweep the corporate world during moments of tech euphoria. There were the companies that added dot.com to their name in the late 90s, and the more recent trend of executives rushing to talk about artificial intelligence during earnings calls. In this case, though, the Bitcoin buyers are putting corporate funds on the line.
Ferrari started with $1 million of Bitcoin last month and he is planning to spend a “significant” amount of Goodfood’s remaining cash — and any future cash flows — on additional purchases.
The Bitcoin-buying tactic has caught fire as the price of the original cryptocurrency has taken off over the past year, leading Donald Trump to talk about even the US government creating its own strategic Bitcoin reserve.
The new additions to the crypto landscape are generally taking inspiration from Saylor, the chairman of Strategy — or MicroStrategy Inc. as it used to be known.
While the company’s old software business has been limping along, the stock has become a darling of retail and institutional investors due to Saylor’s decision to plow the company’s cash — and more recently the proceeds from stock and bond sales — into Bitcoin. Strategy said on Tuesday it plans to offer another $2 billion of convertible debt in a private offering, extending the self-styled Bitcoin treasury company’s unconventional fundraising strategy.
Strategy’s stock has gone up even faster than the price of Bitcoin over the past year and the company is now worth almost twice as much as its roughly $45 billion in cryptocurrency holdings.
Some of Saylor’s proteges have done even better. Metaplanet, which has styled itself as a Japanese version of Strategy, has been one of the best performing stocks in the world since it sold most of its hotel holdings and plunged all the money into Bitcoin last year, and then borrowed money to buy more. (Its lone hotel in Tokyo is being rebranded as “The Bitcoin Hotel.”)
The most recent sign of Saylor’s success came when the CEO of GameStop Corp, Ryan Cohen, posted a picture of himself with Saylor on social media. The post led GameStop’s stock to shoot up as Cohen’s followers speculated that the retailer would become the latest public company to buy Bitcoin.
Some of the current Strategy imitators have followed Saylor’s risky tactic of borrowing money to buy Bitcoin. Semler Scientific, Inc., a medical testing company, borrowed $85 million last month to fund its own purchases and add to the tens of millions of dollars it bought with cash last year.
The move has worked for Semler so far, as its stock has more than doubled since it began buying.
Yet some analysts worry about how sustainable the strategy will prove to be. First, there are questions about what happens to a company’s ability to pay back the money it borrowed if the price of Bitcoin goes down. And even for smaller companies that aren’t taking on debt, there is the worry that the attention boost from buying Bitcoin will diminish as more companies do the same. For Goodfood, the company’s stock initially rose slightly before slumping after it made its first purchases.
“With the Bitcoin ETF and MicroStrategy already existing, the actual long-term utility of other people doing this is very low,” said Campbell, the adjunct NYU Stern professor.
For now, with the original digital token holding near its all-time high, the tactic that Saylor initiated in 2020 has continued to remain attractive.
While there is no official way of tracking the practice, one public list counts 66 publicly-listed companies — and another 12 private ones — around the world that have bought Bitcoin, many of which had nothing to do with Bitcoin, or investing of any sort, previously.
The manager of a $25 million hedge fund, TMR Capital, is about to embark on a letter-writing campaign to encourage dozens of micro-cap companies to follow the MicroStrategy playbook. Ted Rosenthal, the founder of TMR, said he thinks the tactic can give small stocks a huge boost of attention, and he is offering to pool capital to inject more money into the shares of companies that give it a try.
“Bitcoin is a way to get attention very quickly,” Rosenthal said. “There’s probably no other way to get your stock up 20-times in a year.”
This is not the conventional corporate strategy of yore that focused on building sustainable long-term businesses.
To Eric Semler, the CEO of Semler Scientific, the risks are worth it because the new holdings give the company access to a wider pool of potential investors.
The convertible bonds issued by Semler and Strategy — along with a handful of Bitcoin mining companies — have made them attractive to hedge funds looking to employ a form of arbitrage that allows them to capitalize on the volatility of Bitcoin.
Other large investors that are restricted from purchasing Bitcoin directly — even through ETFs — are using stocks like Semler and Goodfood as an indirect way to get exposure to the asset class. Meanwhile, message boards are filled with day-trading crypto aficionados advertising their desire to invest in and support companies with Bitcoin holdings.
Then there is the sheer persuasive power — and attractive returns — of Strategy’s Saylor, who has become a promoter of the practice, and a mentor to many of the executives jumping on board.
“Our board didn’t have a lot of experience of or understanding of Bitcoin,” said Eric Semler. Saylor, who got on the phone with Semler, won him and the board over.
“He is such a strong believer in the merit of what he is doing,” he said. “And he wanted others to follow him and help Bitcoin.”
