Nov 21, · Holding Bitcoin (BTC) in treasury will soon become a corporate standard. Wall Street firm MicroStrategy recently made headlines when it decided to allocate a large portion of its treasury to Bitcoin, buying over 21, BTC in August and almost 17, more in September, making its CEO, Michael Saylor, seem quite prescient already. Aug 06, · The price of bitcoin has increased by 56% since January, according to cryptocurrency data site Messari, reaching its high for the year, $11,, earlier this month before dropping slightly to. Dec 04, · Corporations using bitcoin as a reserve asset in their treasuries has become a hot topic in , primarily due to Microstrategy’s all-in move coupled with CEO Michael Saylor’s all-out media blitz to break down the logic behind this strategy. Square has also made a .
Corporate bitcoinThe Rise of Corporate Bitcoin Key Management
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For example, all U. The magnitude and coordinated nature of monetary and fiscal policy response to the pandemic has been, for lack of a better word, unprecedented. Additionally, during the GFC, central banks like the Federal Reserve printed funds that were given to banks who used them to expand reserves rather than create new loans, meaning funds did not make their way into the broad money supply and circulate in the real economy.
This time, banks are well capitalized, and governments have transmitted newly printed money funded by central banks directly to individuals and businesses. For example, in the U. Corporates would then be confronted with inflation risks, where the purchasing power of their cash declines relative to the price of goods, services, and investments.
Lyn Alden describes three types of inflation — monetary inflation, asset inflation, and consumer price inflation CPI. Monetary inflation an increase in the broad money supply as measured by M2 does not guarantee but is a precursor to asset inflation an increase in the price and valuation of investable assets and consumer price inflation an increase in the price level of non-financial goods and services.
Depending on the type of business, corporations could be impacted to a lesser or greater extent by both asset price inflation and consumer price inflation. For example, asset price inflation could lead to an increase in the value of assets a corporate may want to invest in or acquire, and consumer price inflation could lead to greater inventory costs relative to the purchasing power of cash.
Anyone with a significant cash position — retail investors, institutional investors, and, as of , public companies - is evaluating how to address the unique health and economic situation and the historic monetary and fiscal policy response. Several of these stakeholders are concluding that an unprecedented economic situation calls for an unprecedented response — bitcoin. Bitcoin's potential to address challenges created by the current economic environment has led multiple companies, including Square, MicroStrategy, and Stone Ridge Holdings Group, to make a balance sheet allocation to bitcoin.
Jack Dorsey, CEO of Square and Twitter, believes bitcoin has the potential to become the native currency of the internet: "The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be bitcoin.
According to Square, this complements the company's bitcoin services Cash App , development efforts Square Crypto , and consortium efforts Cryptocurrency Open Patent Alliance.
Square's justification was to align financially with its mission of furthering economic empowerment and facilitating a more inclusionary financial system. There are many factors that Michael Saylor and MicroStrategy have cited in allocating to bitcoin, but, at a high level, their decision was driven by the belief that bitcoin is better than precious metals like gold e.
SRHG announced that it has more than 10, bitcoins as the primary component of its treasury reserve strategy, citing bitcoin's superiority to cash, "unchecked" and "unbacked" global money printing, and real yields that are increasingly negative. As we discussed in our report on Bitcoin's Role as an Alternative Investment , bitcoin is generally uncorrelated to the demand shocks created by the health and economic crisis.
Thus, companies may also benefit from bitcoin's diversification benefits, potential outperformance, and liquidity profile when the core business and other potential investments are disadvantaged by the state of the economy. Bitcoin offers the upside potential of longer-term investments while providing the liquidity profile of shorter-term investments.
Thus, an allocation to bitcoin could allow companies to preserve and potentially grow purchasing power over time, providing a buffer during periods of low profitability and cash flows while being liquid enough to meet short-term obligations. However, with yields at or below zero, the opportunity cost of an allocation to bitcoin has gone down significantly, and the attractiveness of holding a non-yielding asset versus holding a negative yielding asset — either in nominal or real terms with an asymmetric risk vs.
Just as institutional investors are re-evaluating their allocation to fixed income securities offering, we are seeing some corporate treasures do the same.
Bitcoin is a verifiably scarce asset with a transparent monetary policy, which presents a stark contrast to the unlimited expansion in the supply of fiat currencies. The inelasticity and predictability of Bitcoin's monetary policy and the growing importance of these characteristics have helped drive bitcoin's "store of value" narrative.
As we discuss above, treasurers are exposed to multiple risks in managing cash, and many of these risks are heightened due to the current health and economic situation. As businesses look for new ways to optimize their balance sheets, many are turning to bitcoin to offset potential losses. In this table, we summarize many of the risks corporate treasurers face both in times of economic growth and decline, and how bitcoin could provide a potential solution.
The unparalleled nature of the current economic crisis is pushing forward-thinking corporate treasurers to consider adding bitcoin to their balance sheets. The recent announcements from Square, MicroStrategy, Stone Ridge Holdings Group, and others represent a trend that could continue to grow as businesses weigh the risks of historically low-interest rates, diminished liquidity due to the coronavirus pandemic, and the potential loss of purchasing power of cash due to coordinated monetary and fiscal stimulus.
On the other hand, the value of cash has depreciated this year relative to goods consumers buy and other fiat currencies. We expect the trend of diversity in bitcoin participants to continue as different types of investors look for investments with an asymmetric return profile and low correlation to traditional markets. This material is not intended to provide, and should not be relied on for, tax, legal, investment or accounting advice.
Tax laws and regulations are complex and subject to change. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.