Bitcoin and Corporate Treasury Management

 

For years the Bitcoin community has talked of the day institutional investors would begin buying BTC and adding it to their portfolios.

While Dan Morehead and Mike Novogratz were early adopters in the blockchain technology space, there weren’t many other institutional investors openly saying they had Bitcoin in their personal portfolio.

However, that all changed recently when Stanley Druckenmiller and Paul Tudor Jones openly announced they hold Bitcoin in their personal portfolio.

While institutional investors, no doubt, were adding it to their portfolio in secret, this was a watershed moment for Bitcoin. Not many well-respected leaders in legacy finance openly claimed to own it.

The Stanley Druckenmiller’s of the world has opened the door for a wall of institutional money to flow into the blockchain technology space.

Now that we’ve overcome this significant hurdle, the next big wave of liquidity after institutional investor adoption is on its way in the form of corporate treasury management now that Bitcoin has been legitimized as an asset.

Key Takeaways

  • Bitcoin’s technical characteristics make it an ideal, diversified corporate treasury holding.
  • Digital Assets such as Bitcoin have a proven history of acting as a store of value and inflation hedge, which is attractive for corporate treasuries.
  • The rapidly shifting monetary paradigm has accelerated the need for digital currencies creating a fiduciary responsibility for the exposure.

Bitcoin Becomes a Legitimate Digital Asset

Bitcoin has spent years combating the narrative that it’s a scam, Ponzi scheme, or tulip mania 2.0. During every bull run, there have been countless Bitcoin opponents calling for its downfall.

Despite all the negative press, Bitcoin has continued to rise in price and popularity as more users have joined its network.

With each rise in price post halving, it brings new users into its ecosystem who buy into its growing list of use cases.

Among those new users are money managers and high net worth individuals who add high amounts of liquidity into the market, positively impacting its price.

Retail investors mostly drove the 2017 bull run; this current bull run is driven by institutional investors going long on Bitcoin.

This has opened the door for corporate treasury management.

This is all due to Bitcoin becoming a legitimate digital asset thanks to the growing strength of its underlying fundamentals and millions of people joining its network.

The narrative that it could replace gold as a better store of value is gaining traction among institutional investors, further cementing its status as an inflation hedge.

It’s the fiduciary responsibility of a money manager or head of a corporate treasury to act in their client’s best financial interest.

Bitcoin is quickly going from contrarian to consensus, and it would be irresponsible not to have exposure to the best performing asset of the last 10 years.

Digital or not, Bitcoin is here to stay and is disrupting the world’s financial system and changing the way we think about money.

Shifting Monetary Paradigm Accelerates Adoption of Digital Assets

The COVID19 pandemic has run rampant and fractured the economy beyond anything anyone could have possibly imagined.

The lockdowns have forced more people to onboard themselves into a digital world than ever before, having spent months staying safe at home.

While the government has been eying the use of digital currencies for a long time, the need for it has accelerated timelines to the point where their creation is more of an inevitability than an experiment.

This need for digital currencies isn’t isolated to the US – governments all over the world are looking for ways to create and deploy their own digital currencies.

China and the Digital Yuan seem to have a head start though they have remained secretive about its ongoing development and launch.

World governments have also printed more money than ever, ramping up quantitative easing to unprecedented levels, causing rampant inflation among fiat currencies.

This shifting monetary paradigm has accelerated the need for a stronger and more cohesive digital monetary system and inflation hedge to protect wealth.

Bitcoin is currently the best bet and the most effective way to do this due to its decentralization and use case as an international store of value.

Will Government Digital Currencies Make Bitcoin Obsolete?

Some investors believe that once government digital currencies are created, it will render Bitcoin and other digital assets obsolete.

However, government digital currencies will actually strengthen Bitcoin’s use case as an inflation hedge.

A digital currency will make it easier for governments to print more money, devaluing fiat currencies even further.

Government digital currencies will most likely be heavily regulated and centralized, making it difficult to handle cross-border transactions.

Because of that, scarce digital assets such as Bitcoin will continue to gain strength as more government digital currencies are created.

Bitcoin Fundamentals Make it Attractive for Corporate Treasury Management

Google “Bitcoin Price,” and you’ll find a wide variety of different forecasts that range anywhere from $50,000 – $318,000 per Bitcoin during this current bull cycle.

The Stock-to-Flow model points to Bitcoin’s scarcity, post-halving, as the reason for these astronomical price predictions.

However, whether you believe in the price of Bitcoin or not, there it is hard to deny the strength of its underlying fundamentals as an emerging Digital Asset and a store of value.

Bitcoin is the best-performing asset of the last 10 – years and seems to gain strength in a more chaotic economic environment, such as the one we exist in right now.

Additionally, Bitcoin is more than a store of value – it’s a network with a userbase of 100 million with 1 million new users added every month. $1 Billion in value is moved among its network every month as well.

This userbase has a strong culture of independence. Most will not abandon Bitcoin overnight for a government digital currency that will most likely raise privacy concerns.

This network effect will multiply as more corporations add Bitcoin to their balance sheet, and institutional investors continue to go long.

Compared to other global stores of value such as Gold, Bitcoin beats it in every possible way.

While we know that Gold is scarce and its use case has withstood the test of time, we don’t truly know how much Gold is left on earth.

We know that there will only ever be 21 million Bitcoin in existence, and roughly 20% are permanently lost.

Bitcoin can also never be forged, copied, pirated, or duplicated. While several offshoot Bitcoin projects have attempted to dethrone it, none have been successful.

It’s the first time in history we can truly measure the scarcity of a store of value. With every halving, its incredible rise in price has proven it can act as a hedge against inflation and protect wealth.

Other Benefits of Bitcoin for Corporate Treasury Management

Hedge Against Local Currency Risk

 

It’s no secret that fiat currencies have a history of susceptibility to inflation. There are multiple points in history where governments have created more fiat to solve monetary issues only to cause rampant inflation and debasing the local currency.

Not much has changed, and multiple countries are dealing with hyperinflation at high levels.

Venezuela, Zimbabwe, South Sudan, Argentina, and Iran are all countries dealing with rampant inflation rates.

Bitcoin, and other emerging digital assets like Ethereum, can protect the local population from inflation and circumvent the currency and their government’s instability.

 

Non-Seizable Asset

 

Government-regulated fiat currencies can be seized at any time. The risk for this happening rises exponentially in chaotic economic conditions such as the one we live in today.

The monetary paradigm is rapidly shifting due to COVID19. We are moving into unknown territory as a global economy.

One of Bitcoin’s core value propositions is its decentralization and separation from money and state.

Because of this, it can’t technically be seized. If a local currency is unstable, it usually points to an unstable and unpredictable government, which leaves local businesses exposed to losing it all.

While this risk is lower in developed countries like the United States, we can’t say the same thing for countries run by an authoritarian regime.

If there happened to be an economic crisis in your country, there’s no guaranteeing that you could go into the bank and remove your money.

As a business, it makes sense to keep Bitcoin on your balance sheet to protect against unforeseen regulations that could cause economic damage or the local government seizing your assets.

Having Bitcoin on your balance sheet is a hedge against unforeseen circumstances with an authoritarian regime such as Venezuela or Iran.

 

Which Companies Have Added Bitcoin to Their Balance Sheets?

 

One of the biggest recent bets on Bitcoin came from MicroStrategy Inc who has purchased 40,824 BTC for ~$1 Billion USD.

Additionally, Jack Dorsey and Square Inc purchased 4,709 BTC for $50 Million USD.

There is also a site that tracks Bitcoin Treasuries. The list will no doubt continue to grow over time.

The companies on this list currently hold 4% of all the BTC in existence and continue to purchase more as they hit the market.

The effect this has on Bitcoin price can’t be understated. We’re at a point in time where 18,500,000+ Bitcoin have already been created of the 21,000,000 total.

Additionally, 20% have already been lost and may never be recovered.

The Bitcoin Standard

 

At the start of Bitcoin’s existence, it was more of a speculative asset – It was used by many to trade more than hold.

As the best performing asset of the last 10 years, Bitcoin is here to stay, and there’s no denying how it’s disrupting capital markets.

Now more than ever, its user base wants to hold Bitcoin rather than spend it. Bitcoin will never be a digital version of cash, and there are countless other digital currencies that can do this better.

However, it’s become attractive as an international store of value over gold, which makes it the ideal corporate treasury management vehicle.

Corporate treasury management is the next big wave of money for Bitcoin, and the bigger and longer the positions, the higher the price will go.

This article is for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors. There is not enough information contained in this document to make an investment decision.