Holding Bitcoin (BTC) in treasury will soon become a corporate standard. Wall Street firm MicroStrategy recently made headlines when it decided to allocate a large portion of its treasury to Bitcoin, buying over 21,000 BTC in August and almost 17,000 more in September, making its CEO, Michael Saylor, seem quite prescient already. MicroStrategy stock rallied just like BTC as well — by 50%. According to Saylor, Bitcoin was the best inflation hedge and store of value, and in his words, “Cash is trash.” His wager has, so far, been handsomely rewarding.
Technically speaking, Bitcoin is, in fact, a worldwide store of value. BTC is not just a United States or an Asian phenomenon — it is held and exchanged around the world via myriad local exchanges, making the available liquidity pool both global and capillary in granularity.
There are many technical reasons for calling Bitcoin an inflation hedge. BTC is a numerus-clausus asset class, meaning that there is a finite number in circulation (a maximum of 21 million coins) much like gold, high-end real estate and fine art. Furthermore, there is a dwindling new supply of Bitcoin — after the BTC mining halving — and a culture of long-term holding among most crypto participants. All of this spells a small supply. Historically, BTC seems to replay its past bull run waves post-halvings. This is the third halving, and it doesn’t disappoint. On the demand side, the picture is expanding.
The world’s economies are entering strong expansionary monetary phases — generalized quantitative easing, so to speak — as a reaction to the COVID-19 pandemic. Bitcoin, so far, has outperformed every asset class throughout the crisis, spurring new demand and earning its wings as a global store of value. The fact that it is ethereal and not tied to real economic cash flows — unlike, say, stocks or real estate — plays to its advantage when the world’s economies sputter about.
Bitcoin provides an alternative, digital safe haven. Demand, then, is materializing on pure monetary considerations, and Bitcoin is, technically speaking, a natural inflation hedge in that regard. It will soon be a corporate standard like owning treasury notes is.
Crypto as a treasury holdings
There is also a slight ideological bent to the current corporate moves. For savvy chief financial officers, having a portion of the treasury held in digital currency provides a measure of regulatory hedge and arbitrage. No one controls the Bitcoin blockchain, and no government can hack it and seize operational funds. This added safety valve, a feature of most blockchains (censorship resistance), is in fact one of the main raisons d’etre of BTC. This feature may be a deterrent for most central banks, as they want to run their own currencies and blockchains, not Bitcoin’s, and they certainly want to control issuance, unlike Bitcoin’s programmatic and nondiscretionary issuance. And it is, in fact, why Bitcoin will find favor with many chief financial officers, ironically both conservative and avant-garde ones.
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 wager seems very consequential to the business. So far, it has paid off — dramatically. While waging everything may seem foolhardy, not waging anything is worse.
What may seem foolhardy or extreme will seem run of the mill. With about a rough estimate of $10 trillion of corporate treasury worldwide, even a 3% allocation instead of cash represents $300 billion, which is about the aggregate value of Bitcoin, in liquid cash. These orders of magnitude say that BTC’s new wave has arrived. The demand number gets big, and the supply gets smaller. Soon, every chief financial officer will be calmly asking not if the corporation needs exposure to the digital asset class but how to do it well and who to trust in the management of its digital assets.
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