The technical characteristics of Bitcoin make it an ideal asset for diversified corporate treasuries
Owning Bitcoin (BTC) in your treasury will soon become a business standard. Recently, Wall Street firm MicroStrategy made headlines with the decision to allot a large portion of its treasury to Bitcoin. Buying over 21,000 BTC in August and another 17,000 in September, its CEO, Michael Saylor, already appears as a seer. MicroStrategy stocks saw a similar rally to that tracked by BTC, increasing by 50%. According to Saylor, Bitcoin was the best hedge against inflation and the best store of value, a view confirmed by his comment „Cash is trash.“ So far, his bet has been remarkably profitable.
From a technical standpoint, Bitcoin is effectively a global store of value.
BTC is not just a US or Asian phenomenon: people from all over the world own it and trade it through a myriad of local exchanges, making the liquidity pool available both globally and capillary in terms of granularity.
There are many other technical reasons for defining Bitcoin as a protection against inflation. BTC is a numerus-clausus asset class, so the units in circulation are a finite number (a maximum of 21 million coins) very similar to gold, luxury properties and works of art. In addition, the cryptocurrency features a new supply that is steadily declining, following events called halving, and a long-term holding culture among most of the participants. All this implies a reduced offer. Historically, BTC appears to be replicating its previous post-halving bull run. We are in the third halving cycle, and for now everything seems to be going as planned. On the demand side, the picture continues to widen.
The world economies are entering strongly expansionary monetary phases (a generalized quantitative easing, so to speak) to react to the COVID-19 pandemic. To date, Bitcoin has performed better than any asset class during the crisis, spurring new demand and gaining a reputation as a global store of value. The fact that it is an ethereal commodity and not tied to real economic cash flows, unlike stocks or real estate, works to its advantage when economies around the world fall on deaf ears.
Bitcoin offers an alternative digital safe haven. The demand, therefore, is materializing on the basis of purely monetary considerations, and on a technical level Bitcoin represents a natural hedge against inflation in this sense. Taken will be a corporate standard like treasury bills.
Crypto as a treasury asset
The current company trend also has a slight ideological motive. For the more seasoned chief financial officer, having a portion of the treasury in digital assets provides some degree of regulatory protection and arbitrage. No one controls the Bitcoin blockchain, and no government can attack it and seize operational funds. This additional safety valve, a feature belonging to most blockchains (resistance to censorship), is actually one of BTC’s main raison d’être.
This feature can be a deterrent for most central banks, as they want to manage their own currencies and blockchains, not Bitcoin’s, and certainly want to control issuance. On the contrary, Bitcoin has a programmatic and non-discretionary issuing scheme, which is why the cryptocurrency will be welcomed by many chief financial officers, ironically both the most prudent and the most advanced.
What is surprising in the case of Saylor and MicroStrategy is the size of the bet. With a market capitalization of around $ 2 billion, a $ 425 million stake looks very significant for the business. So far, it has definitely paid off. Betting everything might seem reckless, but betting nothing would have been even worse.
What seems reckless or extreme now will be the norm in the future. With a rough estimate of $ 10,000 billion in corporate treasuries around the world, even just a 3% cash-hijacked allocation represents $ 300 billion, a figure quite close to the aggregate value of Bitcoin, in cash. These orders of magnitude herald the arrival of the new wave of BTC. Demand increases and supply decreases. Soon, every chief financial officer will calmly ask not if the company needs exposure to this asset class, but how to get it right and who to rely on