Why companies should view Bitcoin as an asset for diversification and capital protection.
Since August 2020, when MicroStrategy purchased its first bitcoins, more and more companies have started acquiring the asset and adding it to their corporate balance sheets.
MicroStrategy, Tesla, and Block are just a few of the companies that have decided to adopt Bitcoin as a strategic resource to diversify and protect their corporate capital.
A report by River revealed that as of August 18, 2024, companies hold 3.3% of the total bitcoin supply, amounting to 683,332 BTC, a 587% increase since 2020. This growth has been driven by companies like MicroStrategy, Tether, BitMEX, Xapo, and Block.one, which together hold 82% of the corporate bitcoins.
The increase has been supported by a clearer regulatory environment thanks to the update of accounting standards by the Financial Accounting Standards Board (FASB), which will allow bitcoin to be valued on the balance sheet at market value. Until December 2023, companies like MicroStrategy, Tesla, and Block could only report the depreciation of their bitcoin investments, which often resulted in lower earnings due to the asset’s volatility. The new FASB regulations will allow these companies to record both increases and decreases in the value of their bitcoin holdings.
The report estimates that companies will continue to invest in Bitcoin at a daily purchasing rate between 204 and 519 BTC until 2026. According to River, within approximately 18 months, about 10% of U.S. companies will invest 1.5% of their cash reserves in Bitcoin.
But what makes Bitcoin an attractive choice for businesses?
Diversification and protection against systemic risks
One of the main reasons companies consider Bitcoin is its ability to act as a unique diversifier within corporate assets. According to BlackRock, the world’s largest asset manager, Bitcoin’s decentralized nature, its independence from any single state, its scarcity, and its detachment from central bank policies make it a viable option for mitigating geopolitical and monetary risks. While volatility can be seen as a risk, strategically allocating a small percentage of Bitcoin (2% – 5%) in a corporate portfolio can enhance the overall risk-return profile, especially in a context of economic instability and rising public debt.
Additionally, its long-term correlation with traditional assets like stocks and bonds has historically been low. This means it can reduce the overall correlation of a portfolio, serving as a useful diversifier in times of banking crises, currency devaluations, economic recessions, and other systemic risks in the traditional financial system.
Protection against inflation and currency devaluation
Over the years, Bitcoin has proven to be a reliable store of value due to its limited supply. Unlike fiat currencies, such as the U.S. dollar, Bitcoin experiences a constant inflation rate, which is halved approximately every four years (every 210,000 blocks).
Often referred to as “digital gold,” Bitcoin serves as a hedge against the risk of inflation and the devaluation of fiat currencies, especially in a time when central banks worldwide continue to create new money, diminishing the purchasing power of individuals and businesses.
Ready liquidity
Bitcoin provides businesses with access to immediate liquidity. Unlike traditional financial assets, Bitcoin can be liquidated and converted into fiat currency 24/7 across numerous exchanges, complying with all relevant regulations, without the limitations of traditional market opening hours.
This feature could be particularly useful for companies needing immediate access to capital, whether to handle sudden emergencies or seize market opportunities. Daily trading volumes regularly exceed billions of dollars, ensuring that even large transactions can be executed smoothly.
Long-term growth potential
As a relatively new and evolving asset, Bitcoin has demonstrated significant price increases over time, with potential for continued long-term growth. Over the past 15 years, its performance has far outpaced traditional assets, making it an attractive option for investors with a long-term horizon. Including Bitcoin in a corporate balance sheet could allow companies to take advantage of its growth potential.
Let’s consider an example.
Today, the total market capitalization of all assets used as stores of value is around $900 trillion. As of November 2024, Bitcoin’s market capitalization is approximately $1.7 trillion. If, over the years, Bitcoin were to capture a percentage of the market capitalization of every asset, its price would increase significantly. In the following analysis, MicroStrategy hypothesizes a potential future market capitalization of Bitcoin at $200 trillion, implying a price of about $10 million per Bitcoin.
The cases of MicroStrategy, Tesla, and Block
MicroStrategy was one of the first major companies to heavily invest in Bitcoin, adopting an accumulation strategy that has brought its Bitcoin reserves to over $24 billion. Executive Chairman Michael Saylor, who transitioned from a skeptic to a strong advocate, has frequently described Bitcoin as “digital gold,” emphasizing how it serves as a superior store of value compared to fiat currencies.
After about four years, the company’s strategy has paid off, as the price of Bitcoin has significantly increased since the first purchase, also improving MicroStrategy’s stock performance. As of today, MicroStrategy holds nearly 280,000 bitcoins, which represent approximately 1.3% of the total supply.
Tesla then decided to add Bitcoin to its balance sheet. In February 2021, the company invested $1.5 billion in bitcoin, only to sell 75% of it the following year as part of a portfolio rebalancing operation. Currently, the company holds 11,509 bitcoins, according to data from on-chain analysis platform Arkham Intelligence.
Finally, Block, led by former Twitter CEO Jack Dorsey, has made several Bitcoin purchases over time. As of now, the company holds 8,211 bitcoins on its balance sheet, representing approximately 9% of its total reserves of cash, cash-equivalents, and marketable securities. To maintain transaction privacy and reduce price fluctuations during purchases, the company revealed that it has acquired bitcoin over-the-counter through a liquidity provider.
In an April shareholder letter, Dorsey announced the start of a monthly Bitcoin investment program through a dollar-cost averaging (DCA) strategy. Each month, Block invests 10% of its gross profit from Bitcoin-related products, including the hardware wallet Bitkey and the Cash App platform.
