For businesses aiming to offset risks from inflation, currency depreciation, and central bank policies, Bitcoin is now seen as a hedge—a store of value with the potential for stability amidst economic and geopolitical uncertainties.
It all started in 2020 with MicroStrategy, the first publicly traded company to adopt Bitcoin as its primary treasury reserve asset. Many other organizations have followed suit. Japanese investment firm Metaplanet is the latest. Within the space of six months, from May 2024 till now, the firm has expanded its Bitcoin holdings to over 1,000 BTC, making it one of Asia’s largest corporate Bitcoin holders.
This emerging trend brings forth several questions: Is holding Bitcoin a tactic to boost share prices, or are companies solving real business problems through this strategy? And how does this approach intersect with the financial restructuring seen in the Bitcoin mining industry?
This analysis explores the rise of Bitcoin treasuries, the reason behind their popularity, and the roles they play in the financial sector.
The Evolution of Bitcoin as a Treasury Asset
Bitcoin, with its decentralized nature and disinflationary design, has become attractive for organizations looking to reduce reliance on traditional financial systems and volatile debt markets. As mining firms and other companies observed the pitfalls of heavy debt, Bitcoin’s stability and growth potential began to appeal to corporate treasuries.
The initial wave began with Bitcoin mining companies, where the need to shift from debt-heavy financing led many to adopt Bitcoin as a treasury asset. These firms, hit hard by the 2022 crypto winter, faced financial strain due to high debt-to-equity ratios and tightened capital markets, which limited their funding options. Adopting Bitcoin is one of the strategies that has allowed some mining companies to rebalance and move toward equity-focused models and reduce exposure to volatile debt markets.
READ MORE: Why Bitcoin Mining Companies Are Shifting from Debt to Equity
Beyond the mining sector, other publicly traded companies like MicroStrategy and Metaplanet have embraced Bitcoin for its potential to hedge against economic uncertainties and protect their reserves. Metaplanet, in particular, blamed Japan’s economic situation, which has contributed to the decline of the Yen over the years, as a chief factor influencing its decision.
These decisions also seem to bring benefits in another way: shareholder perception and share prices. Investors are showing interest in companies with Bitcoin holdings, viewing this as an alignment with long-term value and resilience strategies that aim to protect against inflation and systemic financial risks.
On the back of a gradual and consistent increase since 2020, Microstrategy’s stock hit a 25-year high on October 25, 2024, with share prices reaching $235.89 after a 7% single-day increase. Its stock has surged over 182% year-to-date, fueled by its aggressive Bitcoin acquisitions.
Metaplanet has also demonstrated a similar pattern.
READ MORE: Metaplanet Reports 116% Return from Bitcoin Strategy in October; Adopts “BTC Yield” as KPI
Meanwhile, this trend has been further validated by the recent U.S. SEC approvals of Bitcoin and Ether spot ETFs, which have boosted the credibility of cryptocurrencies as legitimate financial assets. Although Bitcoin’s volatility still raises concerns about balance sheet stability, companies adopting Bitcoin treasuries continue to weigh these risks against its potential role as a safeguard in a diversified asset portfolio.
The Debate: Asset or Liability?
While more firms are adopting Bitcoin treasuries, industry experts are divided on its long-term viability.
Economist Peter Schiff frequently warns of Bitcoin’s volatility and its dependence on speculative demand. He cautions companies about the risks tied to Bitcoin’s price swings, attributing its volatility to reliance on continual new buying interest. As he noted in a recentX post,
“Bitcoin’s limited supply keeps the price rising only as long as there are new buyers. But when buyer interest wanes, the lack of demand could cause a steep price drop.”
Yes, #Bitcoin has a limited supply. As long as more people want to buy it, but those who already own it don’t sell, the price goes up. But when the supply of new buyers runs low and those who own it want or need to sell it, the lack of new demand causes the price to crash.@saylor
— Peter Schiff (@PeterSchiff) September 10, 2024
Schiff’s criticism extends to MicroStrategy’s adoption of Bitcoin as a treasury asset. In August 2024, he warned that the company’s stock, $MSTR, could face a dramatic downturn. “MicroStrategy is the most overvalued stock in the MSCI World Index. When it finally crashes, it’ll be a bloodbath,” he predicted.
Michael Saylor’s Counter Argument on Bitcoin’s Benefits
In contrast, Michael Saylor, CEO of MicroStrategy, attributes the company’s recent successes to its Bitcoin treasury strategy. According to him, the cryptocurrency allowed the company “to rise above the competition.”
Saylor sees Bitcoin not as a speculative asset but as a resilient reserve that could give companies an edge in a competitive market. His advocacy has been a central argument for Bitcoin’s adoption by other companies looking to diversify and protect their balance sheets against inflation.
In just four years, #Bitcoin has empowered @MicroStrategy to rise above the competition. pic.twitter.com/E3uiO6hlZ7
— Michael Saylor⚡️ (@saylor) August 10, 2024
RELATED: HODL or Spend? Bitcoin’s Identity Crisis in the Age of Long-Term Investors
These opposing views underscore a critical consideration for companies adopting Bitcoin: balancing long-term potential gains with the inherent volatility of the cryptocurrency market.
Final Thoughts
Bitcoin treasuries present a compelling hedge against inflation but come with substantial risk. Volatility remains a primary concern, and companies must balance the potential for high returns with rigorous risk management. Heavy reliance on Bitcoin exposes companies to price fluctuations that could destabilize balance sheets, particularly for firms with significant short-term liquidity needs.
Ultimately, while Bitcoin offers strategic benefits, companies must account for its volatility, weighing potential rewards against market risks. With careful planning, Bitcoin can be an asset that complements traditional strategies—but without caution, it could transform into a destabilizing liability.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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