Microsoft Rejects Bitcoin Inclusion in Asset Allocation: A Giant's Decision and the Future of Cryptocurrency

Microsoft Rejects Bitcoin Inclusion in Asset Allocation: A Giant's Decision and the Future of CryptocurrencyBitcoin's recent price surge has been met with a resounding "no" from tech giant Microsoft. At its annual shareholder meeting, a proposal urging Microsoft to allocate at least 1% of its assets (approximately $780 million) to Bitcoin was decisively rejected

Microsoft Rejects Bitcoin Inclusion in Asset Allocation: A Giant's Decision and the Future of Cryptocurrency

Bitcoin's recent price surge has been met with a resounding "no" from tech giant Microsoft. At its annual shareholder meeting, a proposal urging Microsoft to allocate at least 1% of its assets (approximately $780 million) to Bitcoin was decisively rejected. This move has sent ripples through the market and sparked debate about the future trajectory of the cryptocurrency landscape.

The proposal originated from the National Center for Public Policy Research (NCPPR), a US think tank. NCPPR argued that Bitcoin serves as an effective inflation hedge, historically outperforming traditional assets like corporate bonds. They highlighted the rapid growth of the cryptocurrency market and the increasing participation of institutional investors, suggesting Microsoft should seize the opportunity for diversified asset allocation. As of September 30, 2024, Microsoft held $78.428 billion in cash reserves; the proposal's success would have injected at least $780 million into Bitcoin's buy-side pressure.

However, Microsoft's board firmly opposed the proposal. In regulatory filings, Microsoft cited Bitcoin's high volatility as a key consideration for its application in corporate finance. The company emphasized the need for stable and predictable investments to ensure liquidity and operational funding. Microsoft asserted its existing processes effectively manage and diversify its financial portfolio to serve long-term shareholder interests, rendering the proposal unnecessary.

Michael Saylor, CEO of MicroStrategy a company heavily invested in Bitcoin attempted to sway Microsoft shareholders by highlighting the significant stock price increase MicroStrategy experienced after adopting its Bitcoin strategy. However, this effort proved unsuccessful. Microsoft's major shareholders overwhelmingly rejected the proposal, siding with the board's decision.

Despite the rejection, Microsoft didn't entirely dismiss cryptocurrency. The company stated that past assessments had included Bitcoin and other cryptocurrencies as potential options and that it would continue to monitor cryptocurrency trends and developments to inform future decisions. Amy Hood, Microsoft's CFO, also noted that Microsoft has accepted cryptocurrency as customer payment since 2014, adding, "We've been thinking about the evolution of cryptocurrency."

Vanguard and BlackRock, two of Microsoft's largest institutional investors, played significant roles in the vote. While BlackRock offers crypto ETFs to its clients and is active in the crypto investment market, it ultimately favored stability in its strategic choice regarding Microsoft's asset allocation.

Experts believe Microsoft's decision, as a leading global tech company, will be seen as a significant indicator, potentially causing short-term market fluctuations, particularly within the sensitive cryptocurrency sector. However, considering Bitcoin's inherent characteristics, this short-term impact might be limited, with market reactions eventually hinging on fundamental analysis and macroeconomic assessments.

NCPPR recently submitted a similar proposal to Amazon, urging the company to consider a Bitcoin allocation strategy at its 2025 shareholder meeting, pointing out that MicroStrategy's stock, due to its Bitcoin holdings, outperformed Amazon's over the past year.

Institutional and corporate adoption of Bitcoin is increasingly prevalent. Companies like Tesla and Block have already added Bitcoin to their balance sheets. BlackRock and Fidelity, Amazon's second and fourth largest institutional shareholders respectively, also offer Bitcoin ETFs to their clients.

Jiang Han, a senior researcher at Pangoal Institution, believes Microsoft's decision to reject Bitcoin, based on its existing investment strategy and risk assessment, was rational. He notes that the discussions among global giants like Amazon and Microsoft regarding Bitcoin's inclusion in their investment portfolios reflect traditional institutions' growing attention and acknowledgment of the cryptocurrency market. These companies' investment decisions may trigger similar actions from other investors. He cautions individual investors about the inherent risks, including high volatility and regulatory uncertainty, associated with Bitcoin and other cryptocurrencies.

Zhi Pei Yuan, vice chairman of the China Investment Association's Listed Company Investment Professional Committee, similarly emphasized Bitcoin's appeal as a new asset class, offering inflation hedging, portfolio diversification, and high potential returns. However, he stressed the importance of rationality for individual investors, urging them to fully understand the high volatility, regulatory uncertainties, and potential legal compliance risks involved.

The rising Bitcoin price has not only attracted institutional investors but also prompted some nations to consider Bitcoin as a strategic reserve. Russian MP Anton Tkachev proposed establishing a national Bitcoin reserve as a tool against economic sanctions and for financial stability. A new bill in the Brazilian Congress similarly plans a sovereign federal Bitcoin reserve, potentially up to 5% of the country's reserves.

Since the advent of cryptocurrencies, their regulation has been extensively debated. An increasing number of countries are focusing on the cryptocurrency market, placing cryptocurrency taxation on the regulatory agenda. Differing policies across jurisdictions mean taxation will remain a persistent challenge for the cryptocurrency industry.

The US has enacted legislation requiring any US person receiving digital assets worth $10,000 or more in trade or business to report the transaction to the IRS within 15 days. The US Treasury and IRS have also released proposed regulations concerning broker-dealers' sales and trading of digital assets. The UK and EU have also introduced corresponding tax transparency rules.

Yu Jianing, president of Uweb and honorary chairman of the Hong Kong Blockchain Association, believes the global roll-out of digital asset tax policies signals the refinement and implementation phase of global regulations. Tax policies increase the cost of trading and holding digital assets, potentially suppressing trading frequency and market liquidity in the short term. However, these policies are expected to improve market transparency, attract more institutional investors, and enhance investor confidence in the long run. A clear tax framework provides a compliance basis for investment activities and lays the foundation for the gradual integration of digital assets into mainstream financial markets. Investors need to assess the potential impact of various tax policies on their portfolios and adjust their trading behavior to optimize after-tax returns.

Ultimately, the introduction of digital asset tax policies serves as a tool for governments to generate tax revenue, regulating markets, increasing transparency, and fostering industry maturity. Microsoft's decision to reject Bitcoin for its asset allocation, along with increased cryptocurrency regulation globally, indicates that the cryptocurrency market is entering a new phase, filled with both opportunities and challenges. Market participants must carefully assess risks, invest rationally, and proactively adapt to the evolving regulatory landscape.