Big players are declaring Bitcoin as part of their reserve treasuries — is it time your company did the same?
Grayscale Investment, MicroStrategy, Galaxy Digital, Square, and most recently, the publicly traded Mode, have all disclosed significant treasury holdings in Bitcoin. They are the first to do so publicly; private holdings, undeclared by other firms, may also exist among the so-called ‘whales’ of Bitcoin, however speculative.
For those in the digital asset space, news such as this is always met with fanfare and optimism, with each nod of institutional level approval to Bitcoin seen as further legitimacy and credibility.
But beyond the speculation and hype which often accompanies these announcements, the real question is:
Why are Companies opting to put their treasury reserves in Bitcoin? And why now?
Wealth Preservation, and a Hedge against Inflation
As a reactive countermeasure to endless money printing, rising inflation, increased general global political instability and uncertainty, companies, businesses, and high net worth individuals are re-evaluating wealth allocation, risk exposure, and treasury reserve assets.
Traditionally in times like these, cash has always been king. However, with interest rates stalled, the threat of negative interest rates, and the pandemic anything but under control, the cash as king sentiment is now being institutionally questioned. Companies with large cash reserves on their books are seeing values dramatically eaten away akin to ‘melting ice cubes’, as once stated by MicroStrategy’s very own, Michael Saylor.
Speaking recently on ‘What Bitcoin Did?’ podcast, Michael Saylor CEO of MicroStrategy, a leading Business Intelligence firm that recently converted $450 million of its Treasury from cash to Bitcoin, stated, “Bitcoin is digital gold, it’s the hardest, smartest, fastest, strongest treasury asset… it’s the ultimate long-duration asset”.
For MicroStrategy Inc. and other major multinational companies, Bitcoin as a reserve asset is attractive not only due to its asymmetric risk/reward attributes and safe-haven asset status but also due to the technological properties under the hood that make Bitcoin anti-inflationary by its very design.
Bitcoin has its own immutable monetary policy written into its source code making it fundamentally deflationary. Roughly every four years, Bitcoin experiences a “Halving” event, meaning the rate at which new blocks are produced to the blockchain, is cut in half.
This “Halving”, coupled with Bitcoin’s capped finite supply of 21 million coins, with no new bitcoins able to be minted after 2140, makes it an ideal hedge against rampant Central Bank money printing policies, and the resulting inflation and currency devaluation.
More than just Digital Gold
Widely held views that Bitcoin is a virtual manifestation of gold and a long-term store of value are certainly true, but to a point. For companies adopting Bitcoin to preserve asset value, it has the real potential to fundamentally change and revolutionize how a company operates.
Unlike physical gold, using Bitcoin as a payment settlement method is easy, cheap, not to mention fast. Non-reliance on any third-party intermediaries means funds can be sent instantly to anyone, anywhere, anytime, with settlement times in hours or even minutes, depending on network congestion.
Thanks to Bitcoin’s publicly visible ledger, funds can be sent and transactions closely monitored, giving unrivaled transparency. Barring human error, Bitcoin’s transaction network is as secure as any traditional banking institution and can attest to never being hacked, despite attempts. Because its transaction network is run by thousands of nodes, with more constantly added, it cannot and will never be ‘switched off’.
All this culminates in creating confidence needed to conduct business in a safe and stable medium of exchange, while also reducing exposure to cyber and liquidity risk.
Transaction fees, if compared with sending traditional fiat are negligible, saving businesses untold amounts in commissions and middle-men fees. Funds can be sent to anyone with a smartphone making paying for goods and services or employees in Bitcoin all-inclusive, apolitical, and geographically neutral, ideal for our globalized and yet fractured modern world.
Increasing institutional investment, and maturing global regulations have seen 2020 as one of Bitcoins least volatile years, further legitimizing and justifying it as an ever-maturing asset with real-world use and application.
The rise of the Decentralize Worker
Utilizing Bitcoin beyond a means of value storage and inflationary hedge can bring tangible benefits to multinational companies. Bitcoin being so cheap to convert and easy to move means companies are less geographically constrained and are therefore able to hire the best talent and pay wages in Bitcoin, creating a decentralized workforce of sorts. With the Coronavirus pandemic deepening, and with remote-working fast becoming the new standard, having a decentralized workforce post-Covid is set to become more commonplace.
And thanks in part to the rise of PayPal style payment platform services, such as BitPay and others, the whole process is now easier and more accessible. Using such a platform means no conversion rates or fees for you as an employer to worry about, as the platform handles it, removing all possible pain points. You put the currency in, the employee gets the currency out.
Using Bitcoin as a primary reserve asset allows companies to participate in a new global monetary system. By using an apolitical medium of exchange, business operations would be less averse to the effects of major news events, policymakers, and political decisions.
The clear advantage for multinational companies would have from an operational standpoint is the ability to move funds cheaper, faster, and in a more secure way, reducing costs and improving business efficiency. The compounding effect of this would see increased agility, competitiveness, and a bolstered ability to continue to hire the best talent around the world regardless of geographic location, political jurisdiction, or current world events.