Holding Bitcoin (BTC) in the treasury will soon become a corporate standard. Wall Street firm MicroStrategy recently made headlines when it decided to allocate a large chunk of its cash to Bitcoin, buying over 21,000 BTC in August and nearly 17,000 more in September, this which makes its CEO, Michael Saylor, seem prescient enough already. MicroStrategy stock also rose, as did BTC, by 50%. According to Saylor, Bitcoin was the best hedge against inflation and the best store of value, and in his words, “money is a trash.” His bet has so far been extremely rewarding.
Related: MicroStrategy Buys Bitcoin Shows Institutional Investors Looking To Reduce Risk
Technically speaking, Bitcoin is actually a global store of value. BTC is not just an American or Asian phenomenon – it’s owned and traded around the world through a myriad of local exchanges, making the pool of liquidity available both global and capillary in granularity.
There are many technical reasons for calling Bitcoin an inflation hedge. BTC is a numerus-clausus asset class, which means that there is a finite number in circulation (a maximum of 21 million coins), just like gold, high-end real estate, and fine arts. Additionally, there is a new supply of Bitcoin on the decline – after BTC mining was halved – and a culture of long-term ownership among most crypto participants. All of this is a small amount. Historically, BTC seems to be replaying its last waves of bulls after the halves. This is the third halving and it does not disappoint. On the demand side, the image is widening.
The world’s economies are entering strong expansionary monetary phases – widespread quantitative easing, so to speak – in response to the COVID-19 pandemic. So far, Bitcoin has outperformed all asset classes throughout the crisis, spurring new demand and gaining 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 – works to its advantage when the world’s economies falter.
Related: What the COVID-19 pandemic means for blockchain and crypto
Bitcoin is an alternative digital haven. Demand therefore materializes on pure monetary considerations and Bitcoin is, technically speaking, a natural hedge against inflation in this regard. It will soon be a corporate standard like owning treasury bills.
Crypto as cash
There is also a slight ideological bias in current business movements. For savvy CFOs, holding a portion of cash in digital currency is a measure of regulatory coverage and arbitrage. No one controls the Bitcoin blockchain, and no government can hack it and seize operational funds. This extra safety valve, characteristic of most blockchains (censorship resistance), is actually one of the main reasons for BTC’s existence. This feature can be a deterrent for most central banks, as they want to manage their own currencies and blockchains, not Bitcoin’s, and they certainly want to control issuance, unlike the programmatic, non-discretionary issuance of Bitcoin. And that is, in fact, why Bitcoin will find favor with many CFOs, ironically both conservative and forward thinking.
What is surprising in the case of Saylor and MicroStrategy is the size of the bet. With a market cap of around $ 2 billion, a bet of $ 425 million looks very big for the company. So far, it has paid off – dramatically. Doing everything may seem reckless, but doing nothing is worse.
What may seem reckless or extreme will seem trivial. With a rough estimate of $ 10 trillion in corporate cash around the world, even an allocation of 3% instead of cash equates to $ 300 billion, which is roughly equal to Bitcoin’s total value, in cash. These orders of magnitude indicate that the new wave of BTC has arrived. The number of requests is growing and the supply is decreasing. Soon every CFO will calmly ask not if the company needs exposure to the digital asset class, but how to do it right and who to trust with managing their digital assets.
This article does not contain any investment advice or recommendations. Every investment and trading move carries risk, readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed herein are the sole ones of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Marc Fleury is the CEO and co-founder of Two Prime, a financial technology company that focuses on the financial application of crypto to the real economy. Drawing on his financial expertise ranging from his role advising private equity firms to his academic activities in modern monetary and banking theories, he provides the strategic direction for the investment strategy and core partnerships for the company. .