Should Cryptocurrency be Part of your Corporate Treasury Strategy?

Could cryptocurrency fit into your strategy for managing your short-term cash on hand? We’re in the middle of a series of articles about how businesses can best utilize their cash reserves—building a comprehensive corporate treasury strategy.

Crypto Basics

We believe cryptocurrency can be part of that strategy. Cryptocurrency is a method of banking. Cryptocurrency is banking without intermediaries. That’s what makes it so powerful. Cryptocurrencies like Bitcoin use peer-to-peer technology to operate with no central authority. Managing transactions and the issuing of bitcoins is carried out collectively by the network. Transactions are verified and recorded in a public distributed ledger called a blockchain.

Bitcoin, the best-known cryptocurrency, was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto believing that there is too much inequality, injustice, and corruption that occurs in the traditional banking system. In creating Bitcoin, Satoshi Nakamoto called forth a new financial network that evens the playing field for everyone in the world.

Why Invest in Crypto?

Like anything else, you don’t want to put all your short-term assets into cryptocurrency. But more and more, it is becoming a solid investment choice for corporate treasury.

Cryptocurrency is an evolution of not just banking, but the limitations of having a commodity-based currency like gold. In other words, cryptocurrency is not speculative, as it was seen to be in the not too distant past.

One case study of interest is the company Micro Strategy. When they recently made a big purchase of $250 million in Bitcoin, here’s what CEO Michael J. Saylor of the publicly-traded software company had to say: “This investment reflects our belief that Bitcoin, as the world’s most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.” While we wouldn’t advise making Bitcoin the biggest part of your treasury reserve plans, holding a portion of those reserves in crypto can be a solid strategic play.

Just like any other investment, there is risk involved, but Micro Strategy shows that more and more companies are finding that the potential upside outweighs that risk.

And there is a new class of cryptocurrency emerging. A stablecoin is a cryptocurrency with more price stability and backed by a reserve asset. Stablecoins offer both the instant processing and security/privacy of cryptocurrencies, and the volatility-free, stable valuations of fiat currencies.

Cryptocurrencies offer instant liquidity on a 24/7 basis, so your cash is not tied up. But cryptocurrency banks offer higher rates of interest than holding cash in traditional savings or checking accounts. That is what Micro Strategy saw and decided to take advantage of.

Store of Value

Here are a few basic facts about Bitcoin from Digital Asset Investment Management’s The Case for Bitcoin

• As of July 2020, over 18.4 million bitcoins have been mined. The maximum supply of Bitcoin can only be 21 million—meaning there are less than 2.6 million bitcoins left to mine.
• Without getting overly technical, the algorithmic schedule of mining is predetermined, public, and final—the last bitcoin will be mined in 2140
• How scarce is Bitcoin? There are approximately 60 million millionaires around the world. If we divided the maximum supply, each millionaire would only be able to own 0.35 bitcoin.
• It’s this fixed supply and scarcity that gives Bitcoin such potential as a Store of Value, opening up a world of opportunity as money.

I think cryptocurrency is an exciting opportunity and hedge against inflation as part of your corporate treasury strategy. If this sounds interesting, we would love to speak with you!