Adding Bitcoin as a treasury asset
- A freak in the (balance) sheets
- What are the benefits of adding Bitcoin to a balance sheet?
- Which businesses are adding Bitcoin to their balance sheet?
- Our expectations
A freak in the (balance) sheets
Over the years, Bitcoin’s use case has slowly changed. In Satoshi’s whitepaper, Bitcoin was named as decentralized cash with the goal of transferring money without a centralized third party. Then it slowly transitioned to a store of value with increasingly more investors referring to it as digital gold.
Now we observe a new trend, businesses adding Bitcoin to their balance sheet as a treasury asset.
What are the benefits of adding Bitcoin to a balance sheet?
There are various reasons for businesses to add Bitcoin to their balance sheet but the most important are:
- Diversification
Bitcoin remains one of the few assets that exists outside of our current financial system, offering companies a unique opportunity to diversify their holdings.
- Inflation risk
Increasingly more businesses are citing inflation as their primary reason to add Bitcoin to their balance sheet. As inflation increases or even persists, the purchasing power of the company’s cash slowly diminishes. Due to Bitcoin’s unique features such as its scarcity, more businesses see Bitcoin as an asset to maintain and preserve their cash.
Which businesses are adding Bitcoin to their balance sheet?
One of the first businesses to do this, and arguably the most famous, is the business software firm MicroStrategy. In August 2020, MicroStrategy announced that it had acquired 21,454 Bitcoin, worth approximately $250 million. According to the firm, the decision was driven by the company’s search for a new treasury reserve asset to protect against asset inflation. Since then, MicroStrategy has added a total of 447,470 Bitcoin to its balance sheet for approximately $23.41 billion, while the total value stands at ~$42.4 billion, bringing its unrealized profit to ~$19 billion.
Another notable example of adding Bitcoin to a balance sheet is the Japanese company Metaplanet. Although slightly later to the party than MicroStrategy, the firm made its first Bitcoin purchase on April 8, committing $6.5 million. The effects were immediately apparent, as Metaplanet’s stock price rose by 80% within a week of the initial Bitcoin acquisition.
Encouraged by these positive results, the firm has continued to purchase Bitcoin multiple times, bringing its total holdings to 1,762 Bitcoin, worth approximately $168 million. Furthermore, since its first Bitcoin purchase, the company’s stock price has surged by over 1,800%, compared to Bitcoin’s 45% increase in the same period.
These are well-known examples, but other companies include Block Inc., Stone Ridge Holdings Group, and Semler Scientific. Furthermore, other firms are slowly but surely exploring the possibility of adding Bitcoin to their balance sheets. In December, the market observed Microsoft conducting a vote during their shareholder meeting to diversify into Bitcoin. Although it was rejected, it’s an interesting development.
Our expectations
When looking back at the first companies adopting Bitcoin as a balance sheet asset, one thing becomes particularly clear: their founder or CEO was often already an early adopter of Bitcoin. While we are not saying that these companies were forced into the decision, there was likely some bias involved. However, over the past few years, it is evident that a shift has occurred. For instance, the Japanese firm Metaplanet Inc. added Bitcoin as a way to reduce its exposure to the Japanese yen, hedge against inflation, enhance macroeconomic resilience and establish a basis for long-term capital appreciation.
The tide is clearly turning, and therefore, we expect more companies to explore the opportunity of adding Bitcoin to their balance sheets. Additionally, we have already observed initial discussions in the U.S., at both national and state levels, about creating strategic Bitcoin reserves. Although we don’t have a crystal ball and can’t provide any guarantees, we strongly believe we will soon see a major U.S. public company add Bitcoin to its balance sheet.
This development will undoubtedly have significant implications for the market. It will illustrate the growing maturity of Bitcoin as an asset and could pave the way for other digital assets to be incorporated into corporate balance sheets in the near future.