Why should a company consider including Bitcoin in its treasury?

Bitcoin is an intrinsically strategic asset for businesses

The role of Bitcoin as a strategic asset for companies to hold in their treasury has become a key topic of debate among business leaders, financial strategists, and institutional investors.

As is often the case with significant issues, the business community is highly divided. Proponents of this perspective, such as Michael Saylor and Larry Fink (CEO of BlackRock), argue that Bitcoin is an adequate safeguard against inflation. In contrast, critics like Peter Schiff caution about its inherent volatility.

This analysis will provide a comprehensive overview of the potential benefits of incorporating Bitcoin into corporate treasury management strategies.

The history of Bitcoin adoption by businesses

It is helpful to briefly trace Bitcoin’s history to understand how and why corporate treasuries began adopting it. Many developments stem from Bitcoin’s ability to present itself as a fundamentally distinct asset. Additionally, some companies recognised the significant potential of this new form of currency before others did.

Why hold Bitcoin within one’s treasury?

Bitcoin is notable for its instant transferability: its blockchain operates continuously and applies to cryptocurrency exchanges, whether centralised or decentralised. Due to its increasing adoption over the years, Bitcoin has become an extremely liquid asset, with daily trading volumes exceeding $10 billion. 

This liquidity is crucial for companies that hold Bitcoin. It enables them to buy and sell the asset anytime, providing essential flexibility when quick decisions are needed. In this regard, Bitcoin can be seen as a viable alternative to cash.

Additionally, recent years have seen an improved understanding of Bitcoin among regulators and policymakers, leading to greater regulatory clarity. This development has significantly lowered barriers to entry, making it easier for corporations and institutional investors to adopt Bitcoin. Major firms like BlackRock, which manages $10 trillion in assets, along with Fidelity and Invesco, have begun offering spot ETFs linked to Bitcoin, incorporating it into their portfolios. Within less than a year, these financial instruments have attracted $30 billion, while the total value held in Bitcoin by these financial giants exceeds $100 billion.

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Bitcoin has proven to be one of the most profitable assets of the past decade, with an annualised growth rate of 66%. Its capped supply of 21 million units makes it an effective store of value, a characteristic many companies have leveraged by incorporating it into their balance sheets. This strategy has allowed these companies to preserve their asset values better and enhance their financial stability. Thus, Bitcoin is both a liquid and transferable asset and a strategic tool for corporate treasury management.

Key players in the global financial landscape support this perspective. For instance, a comprehensive survey conducted by Fidelity in 2024 found that 72% of institutional investors view digital assets as part of their investment strategy, a notable increase from 45% in 2020.

The problems of corporate treasury

Companies often lose money or struggle to maintain value due to poor investments or currency devaluation due to inflation. Currently, most corporate treasuries consist of the same assets.

The primary purpose of a company’s treasury assets is to meet its operational needs while generating a sufficient return to maintain its value over time. As a general guideline, companies should keep enough cash to cover three to six months of expenses.

However, it is common for companies to maintain a level of liquidity that exceeds this minimum threshold. The reasons for this excess liquidity can vary depending on the company’s size.

Many companies tend to keep large amounts of cash in their treasuries, which can lead to a loss of value over time. As a result, it can be argued that the assets held within corporate treasuries often generate returns that fall below the inflation rate in the long run.

According to the Harvard Business Review, U.S. companies currently hold about $7 trillion in cash, 400% more than in 2000. This amount represents 20% of all assets under management. While this arrangement provides greater flexibility for companies, it ultimately decreases the long-term returns for shareholders.

Apple’s corporate treasury

To make this discussion more concrete, we can examine the work of Apple, the world’s largest company with a capitalisation of $3.5 trillion.

Apple’s treasury has been significantly impacted by inflation because of the types of assets it holds. Despite spending less than $5 billion on acquisitions over the past decade, the company has incurred a net loss of over $15 billion when accounting for inflation. This loss is mainly due to the capital invested in its treasury, which is locked in assets with nearly zero returns.

Apple is an extreme example, but this phenomenon impacts any company with a treasury primarily composed of cash and short-term securities.

Bitcoin’s impact on corporate treasuries

Next, let’s examine the potential impact of Bitcoin on companies that incorporate it into their corporate treasury.

Due to its digital scarcity, Bitcoin is an effective tool for protecting against inflation. With a capped supply of 21 million coins, it safeguards against currency devaluation. Since 2020, companies that have held even a tiny share of Bitcoin have consistently shielded themselves from the effects of inflation.

Any company can find itself where part of its liquidity is blocked. Credit institutions’ operating hours limit access to liquidity during non-working hours and weekends, which poses a risk for businesses that depend on short-term credit facilities for their operations or those that frequently rotate their capital. In contrast, Bitcoin operates continuously; its blockchain is active 24 hours a day, 365 days a year. By holding Bitcoin, businesses can gain immediate and reliable access to liquidity whenever they need it.

Counterparty risk is the possibility that the other party in a financial contract will fail to fulfil its obligations. Every financial transaction carries some level of counterparty risk. However, Bitcoin’s decentralised nature helps mitigate this risk, making it secure, non-confiscatable, and almost impossible to steal.

After the collapse of Silicon Valley Bank in March 2023, many companies encountered an often-overlooked risk: the potential inability of financial counterparties to meet their obligations. Unlike fiat money, Bitcoin gives corporate treasury managers a unique opportunity to safeguard a portion of the company’s assets directly. This enables companies to protect themselves against counterparty risk, particularly during times of economic uncertainty or in geopolitically unstable situations.

Successfully managing a corporate treasury involves striking the right balance between mitigating risk and preserving or accumulating value. While traditional assets typically provide short-term stability, they often undermine corporate value in the long run, as Apple’s experience illustrates. In contrast, Bitcoin can offer a solution to help mitigate specific risks and, when allocated thoughtfully, can preserve value over time.

Even a modest 15% allocation of Bitcoin within a corporate treasury can significantly help diversify and counter the impacts of inflation. Over the past five years, Bitcoin has consistently outperformed the S&P 500, representing the five hundred largest US companies, as well as gold and bonds.

Obstacles to the implementation of Bitcoin as a corporate reserve

Most treasury assets, such as cash, cash equivalents, and securities, can be traded and held within the traditional financial system, primarily through banks. The accounting principles and regulatory frameworks that govern these assets are clear, well-established, and generally understood by most companies.

In contrast, Bitcoin is a relatively new asset that operates on a decentralised protocol. This places it outside the traditional financial system, so including Bitcoin in a company’s treasury necessitates additional governance procedures.

If companies wish to incorporate Bitcoin into their reserves, they should establish a clear investment strategy that is communicated to shareholders. This strategy should address key aspects such as the quantity and timing of purchases and sales, as well as the potential impact of these transactions on the company’s balance sheet.

There is no one-size-fits-all strategy for integrating Bitcoin into corporate treasuries. The approach varies based on the company’s size, operating model, and financial structure. The primary strategy can be categorised into four main groups:

Once the strategy has been established, it is crucial to create an internal working group to examine the various stages of the process and associated challenges. These challenges include negotiation, accounting, reporting issues, and decisions regarding custody methods, security management, and regulatory compliance.

Establishing a comprehensive setup that addresses all the previously mentioned points is essential for integrating Bitcoin into your corporate treasury. This is important because Bitcoin is a new and fundamentally different asset from traditional ones. The main risks that companies face can be categorised into three areas.

It is essential to understand and adhere to current regulations, which can often be unclear and vary by country based on the location of a company’s registered office. As highlighted by Price Waterhouse Coopers (Pwc), there is significant regulatory disparity regarding cryptocurrencies across different jurisdictions. Some countries are embracing digital assets, while others are imposing strict restrictions. In Europe, the Market in Crypto Assets (MiCA) regulation is being enacted, and adapting to this new regulatory framework presents a significant challenge for industry players operating within the European Union.

Bitcoin is highly volatile, unlike most assets that typically serve as liquidity surrogates. Its unstable price, which fluctuates over time, can pose a significant risk for companies that have not carefully planned how to include this asset on their balance sheets.

Bitcoin’s blockchain is highly secure; however, this does not guarantee that companies holding Bitcoin are immune to cyber attacks, phishing, or internal fraud. To mitigate these risks, robust security measures must be implemented. Additionally, companies may consider partnering with specialised organisations with extensive experience addressing these challenges.

Conclusions

Integrating Bitcoin into corporate treasury operations is not merely an innovation; it can also serve as a strategic decision for companies seeking to protect their capital from inflation, diversify their asset holdings, and increase their financial independence. However, such a decision necessitates expertise, vision, and meticulous planning. Young Platform is the ideal partner to guide businesses through this process. With a dedicated Account Manager and customised services, we assist companies in managing the complexities of cryptocurrency integration and operations, ensuring security, regulatory compliance, and maximum efficiency.