Bitcoin as a treasury reserve asset

Crypto

Over the past few years, Bitcoin has been steadily increasing its status as a safe haven asset for many investors, driven by ongoing macroeconomic uncertainty, geopolitical tensions and its outperformance compared to major traditional asset classes. But whether seeking exposure is for new investment opportunities, diversification strategies, or wealth preservation, what is now interesting to observe is the slow but steady increase in firms incorporating Bitcoin into their treasury reserves.

It is hard to argue against the fact that crypto assets are maturing. They have made their way into regulatory frameworks, US presidential campaigns, and even as legal tender (Bitcoin in El Salvador). Now, with the SEC’s recent approval of Bitcoin and Ether spot ETFs, their presence and acceptance in TradFi markets is more substantial than ever.

But few could have imagined that just a few years ago, Bitcoin, a cryptocurrency long associated with volatility and risk, would find its way into conservative portfolios and the treasury reserves of companies. Times have certainly changed.

From a safe haven to a treasury reserve asset?

Like any innovation, it takes time to establish trust and confidence, and although Bitcoin is still in its infancy compared to other asset classes, it has certainly stood its ground against political pressure, volatile market cycles, black swan events and ongoing scepticism from many in the TradFi space. So much so, that many once sceptical financial institutions and governments are now publicly endorsing its resilience and adoption.

Even without labelling Bitcoin as a “proven” safe haven asset, it is obvious that many are now starting to treat it as such. Perhaps this appeal, along with the growing acceptance of Bitcoin in TradFi, is likely why some corporate treasurers are now using Bitcoin to safeguard their company’s cash reserves.

We are not suggesting that board executives or public pressure are forcing companies to adopt crypto assets like Bitcoin. Rather, it is about a corporate treasurer’s fiduciary responsibility to manage risks and ensure the long-term stability of the treasury itself. With rising government debt levels, inflation risks, and the declining trust in fiat currencies, a decision to include Bitcoin appears to be more of a strategic one, if anything else. There are several reasons why they might do this. Here’s a few to consider:

  • Store of value and inflation hedge: Bitcoin’s limited supply creates a level of scarcity that is hard to replicate in the digital world. Its algorithmically capped supply is disinflationary, so while fiat currencies lose purchasing power over time due to inflation, Bitcoin can serve as a bulwark against erosion of value over time.
  • Legitimisation of Bitcoin as an asset class: With the SEC greenlighting Bitcoin spot ETFs, along with global regulatory endorsements and institutional support, Bitcoin has established itself as a legitimate asset class in mainstream finance.
  • Waning trust in fiat currencies: Bitcoin is independent of any government, so if trust in traditional fiat currencies wanes, companies could begin converting their cash reserves into Bitcoin to protect their wealth.
  • Geopolitical uncertainty: Bitcoin’s idiosyncratic drivers should in theory remain largely unaffected by national crises, political upheavals, wars, or even economic sanctions. This has made Bitcoin a go-to asset for many investors and companies seeking long-term stability.  
  • Counterparty risk in the banking sector: Bitcoin’s decentralised nature means it doesn’t rely on counterparties, and the recent failures of Credit Suisse, First Republic, and last year’s Silicon Valley Bank exposed the vulnerabilities in the traditional banking sector. Corporate treasurers might turn to Bitcoin to avoid these risks.
  • Bandwagon effect: As more companies and institutions begin endorsing crypto and/or incorporating Bitcoin into their treasury reserves, the bandwagon effect is likely to have some merit.

Companies adding Bitcoin to their treasuries isn’t exactly a new trend. Back in 2020, we saw the first wave of businesses like Tesla, Microstrategy, Square and Stone Ridge (among others) adding Bitcoin into their treasury strategies. At that time, however, the crypto market was far less mature and many non-crypto businesses were more sceptical towards crypto assets. Today, and given the reasons stated above, it feels like we are at the start of a second wave, where Bitcoin’s appeal is arguably becoming more difficult for corporate treasurers to ignore.

More companies are adopting Bitcoin as a treasury reserve asset

The SEC’s approval of several institutional-led Bitcoin and Ether spot ETF products was a major turning point for the crypto market. Not only does this development bring a new level of legitimacy to crypto as an investable asset class, but these ETFs are supported by some of TradFi’s most reputable institutions, such as BlackRock and Fidelity. Perhaps this could be a reason why we are now seeing Bitcoin appear on the balance sheets of several new companies. Here are a few examples in recent months:

Publicly traded health tech company, Semler Scientific, recently announced its new treasury strategy and adopted Bitcoin as its primary treasury reserve asset, alongside a purchase of 581 Bitcoins currently worth USD 40 million.

  • “Our bitcoin treasury strategy and purchase of Bitcoin underscore our belief that Bitcoin is a reliable store of value and a compelling investment,” said Semler Scientific’s Chairman Eric Semler.

US based meat and seafood company, Beck & Bulow, announced its decision to accept Bitcoin as a treasury reserve asset and a means of payment, while also incorporating the cryptocurrency into their employee 401k program.

  • “Beck & Bulow is converting 20 percent of our assets to Bitcoin, affirming its value as a strong store of value. We will also retain all Bitcoin payments received, reinforcing our confidence in Bitcoin’s long-term potential,” said Beck & Bulow via their official blog publication.

Publicly traded Japanese hotel service company, Metaplanet, announced its plans to adopt Bitcoin as a treasury reserve asset, purchasing JPY 1 billion (USD 7.2 million) worth of Bitcoin.

  • “This move is a direct response to sustained economic pressures in Japan, notably high government debt levels, prolonged periods of negative real interest rates, and the consequently weak yen,” said Metaplanet in a press release announcement.

Publicly traded digital wealth and payment business Mogo, announced its new treasury management strategy to include Bitcoin and Bitcoin ETFs, with an authorised initial investment of up to USD 5 million.

  • “The recent regulatory approval of spot ETFs, along with the commitment of several of the world’s largest asset managers such as Fidelity and BlackRock, support our view that Bitcoin is a legitimate asset class with attractive qualities that make it a unique store of value”, said President of Mogo Inc., Greg Feller.

A new path worth exploring?

There are inherent risks in using Bitcoin as a treasury reserve asset, but then again, we could argue that there are also risks in holding fiat currencies over long periods of time. Bitcoin is not governed by continuous debt spirals and changing monetary policies, both of which can and continue to negatively impact investor confidence, central bank credibility and national currency valuations around the world.

So, if the role of corporate treasurers is to prudently safeguard a company’s cash reserves, and traditional reserve assets are starting to waver, then perhaps exploring Bitcoin as a viable option for preserving those reserves is a path many companies will start to explore. All of this remains to be seen, of course.

ENDS

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