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Phunware (PHUN) Bitcoin purchases part of strategy shift

By Kevin Donovan

20:41, 23 November 2021

Bitcoin on Phunware app on smartphone
Cloud software company Phunware plans to hold Bitcoin for treasury operations

Phunware’s recent purchases of Bitcoin are part of a strategic shift in the Austin, Texas-based enterprise cloud mobile platform’s treasury operations in response to the current inflationary environment, Phunware CEO Alan Knitowski said.

“Do you want to hold an asset that depreciates 25% per year or an asset that appreciates 200% per year over the past 12 years?” Knitowski asked. “Outside of operational costs, like payroll, why would you hold cash? It’s a melting iceberg.”

Phunware has recently purchased 529 Bitcoin in two transactions for a total value of roughly $31.8m (£23.77m), compared to just $1,497 in Bitcoin holdings as of 30 September. The plan has been in the works for some time but needed to go through the proper corporate governance channels before it could be executed.

Additionally, Phunware needed the liquidity to fund two sizeable Bitcoin purchases, which it raised through recent secondary share offerings, Knitowski confirmed. On 26 October, Phunware closed a $48.5m equity share sale with B. Riley acting as sole underwriter, according to records filed with the US Securities & Exchange Commission.

First Bitcoin purchase

Phunware’s first Bitcoin purchase last year for roughly $1.5m was used to launch Phunware’s cryptocurrency ecosystem, because as Knitowski noted, “the US Dollar doesn’t transfer over a blockchain.” Phunware has two tradeable tokens, PhunCoin and PhunToken.

Following another 131 bitcoin purchase, Knitowski received corporate approval for the most recent 398 Bitcoin acquisition, announced Monday. Phunware currently allocates its assets in Bitcoin, various stablecoins, such as Gemini’s GUSDCoin, for its near-term liquidity needs and between $5m and $7m in cash for general corporate operation costs.

“We want to use our treasury operations strategically to support our four core lines of business,” Knitowski said. “And we can use Bitcoin as collateral liquidity better than a working capital facility.”

Flawed accounting standards

An additional benefit is a lack of current Generally Accepted Accounting Practices (GAAP) for valuing Bitcoin holdings on a balance sheet. Since federal regulators consider cryptocurrencies in general as a commodity, rather than a security, Phunware can value its holdings at the lowest price during the time it is held.

US100

19,526.60 Price
-1.140% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 7.0

Gold

2,401.36 Price
-1.830% 1D Chg, %
Long position overnight fee -0.0198%
Short position overnight fee 0.0116%
Overnight fee time 21:00 (UTC)
Spread 1.20

ETH/USD

3,492.41 Price
-0.570% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

BTC/USD

66,603.80 Price
-0.650% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

“At current prices (Bitcoin currently trades at $57,487.96), we can value some of our Bitcoin holdings at right around $29,000 and carry an unrealised gain on our books.” This accounting loophole is something Knitowski admits should change, adding “it should be (valued) mark-to-market.”

Inflation isn't transitory

Like many in the cryptocurrency world, Knitowski is bearish on the US Dollar, and fiat currency in general, believing inflation is not as transitory as some economists believe.

Noting the 398.5% increase in the M1 money supply from $4.02trn in February 2000 to over $20trn as of the most recent reporting period in October, according to the St. Louis Federal Reserve Bank, Knitowski added the Federal Reserve intentionally creates inflation because “inflation is legalised theft.”

“We have a bunch of non-serious people working on serious problems by printing money,” Knitowski added. “Right now we trust the Blockchain over the bankers and politicians.”

Adding he sees Bitcoin reaching $1m within the next five years, Knitowski said, “we have 529 Bitcoin, in five years we’ll have $529 million.”
 

Read more: Phunware (PHUN) buys bitcoin: price spikes shares fall

 

 
 

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