Bitcoin or bust: Companies add BTC to treasury for long-term potential

Over the last few years, several private and publicly traded companies have started adopting Bitcoin as a treasury asset.

One company in particular — now well-known in the space — has accumulated over 1% of the Bitcoin supply.

That company, MicroStrategy, has become influential in the industry for its massive Bitcoin holdings — 226,331 BTC at the time of writing — and while it often takes the spotlight away from other corporate Bitcoin holders, there are now dozens of companies with much smaller amounts of the cryptocurrency in their treasuries.

These include the Nasdaq-listed cryptocurrency exchange Coinbase and Bitcoin miners such as CleanSpark, Riot Platforms and Hut 8.

Companies that aren’t directly related to the crypto space, such as electric car maker Tesla, medical manufacturer Semler Scientific, e-commerce giant Mercado Livre and Chinese tech firm Meitu, also hold Bitcoin on their balance sheets.More recently, DeFi Technologies — a publicly listed exchange-traded product (ETP) provider — adopted Bitcoin as its primary treasury reserve asset and acquired 110 BTC.

Together, private and public companies hold 812,929 BTC, equivalent to roughly 3.87% of Bitcoin’s total supply, according to data from BitcoinTreasuries.

This trend has led to the rise of a new type of Bitcoin holder, which started shortly before the launch of spot Bitcoin exchange-traded funds (ETFs) in the United States. This makes it even easier for corporations to gain exposure to the cryptocurrency.

The impact of companies holding Bitcoin has so far been widely seen as positive, and the motivations behind it are clear: Bitcoin has long-term potential that contrasts with the slow, steady decline of the U.S. dollar.

Adopting Bitcoin as a treasury asset

The U.S. Federal Reserve aims to keep inflation at 2% per year. In theory, in an ideal scenario, the value of the U.S. dollar will drop by 2% per year, as “inflation that is too low can weaken the economy.”

That ideal scenario hasn’t always played out, with inflation hitting 9.1% in 2022 and stabilizing around 3.5% after the Fed increased interest rates. This volatility has prompted corporations to seek assets that are more resistant to inflation.

Various central banks worldwide have adopted a similar monetary policy, contrasting with Bitcoin’s 21 million supply cap and predictable monetary policy.

Bitcoin’s features and turbulent history have seen its performance have a low correlation with other asset classes while earning it a reputation as a potential inflation hedge.

Speaking to Cointelegraph, a Binance spokesperson commented on the growing corporate adoption:

“Given Bitcoin’s low correlation to the performance of traditional asset classes, such as equities and bonds, Bitcoin may look attractive to institutional investors as an addition to their investment portfolio and hedge against traditional market volatility, thereby spreading risks while potentially enhancing portfolio performance.”

The spokesperson added that they believe a stable regulatory environment can protect investors and support innovation while establishing trust in the industry to enable its long-term growth. They said that harmonized regulatory frameworks are becoming more common and will help make companies more comfortable investing in crypto.

Bill Zielke, chief revenue and chief marketing officer at BitPay, told Cointelegraph that companies are adopting BTC as they “see the long-term vision of Bitcoin as an appreciating store of value and hedge against inflation.”

Zielke added that they may “also believe that we are at the beginning stages of a blockchain-powered world in tech and finance.”

Speaking to Cointelegraph, Curtis Schlaufman, vice president of marketing and communications at DeFi Technologies, elaborated on the decision to adopt Bitcoin:

“We have adopted Bitcoin as our primary treasury reserve asset, reflecting our confidence in its role as a hedge against inflation and a safe haven from monetary debasement.”

Schlaufman added that Bitcoin, as the best-performing asset over the past decade, offers “significant short to long-term potential to expand the company’s treasury.” While Bitcoin’s potential is enticing, it’s important to acknowledge the risk associated with this new asset class, known for its significant price fluctuations.

Managing Bitcoin’s volatility

It is rare to see daily double-digit price swings in traditional asset classes like stocks and bonds, but these are fairly common in the cryptocurrency space. Bitcoin itself has seen these swings on multiple occasions in days of extreme volatility.

Arina Dudko, head of corporate payment solutions at cryptocurrency exchange Cex.io, told Cointelegraph that just looking at Bitcoin’s price chart reveals “a series of peaks and valleys that illustrate its erratic trading value” in a rollercoaster that is “well-known to crypto enthusiasts, but could startle business investors who measure success a quarter at a time.”

Weathering the turbulence is a necessity for any entity with exposure to Bitcoin. As BitPay’s Zielke told Cointelegraph, any company adopting Bitcoin as a reserve asset risks short-term losses and accounting complexity, while also having to educate employees and stakeholders on it.

Zielke added that Bitcoin has seen several setbacks over its history, referencing the collapse of hacked cryptocurrency exchange Mt. Gox and the FTX bankruptcy, but noted that BTC “rallied back every time” and that the “financial rewards are clear and obvious.”

The rewards aren’t just financial. Companies adopting Bitcoin as a treasury reserve asset are “positioning themselves as titans of the future,” said Zielke.

Cex.io’s Dudko said companies of any size should do diligent research and carefully reflect on their risk appetite before allocating resources to Bitcoin:

“To avoid falling into dire financial straits, it could be wise for companies to consider how they would fare if BTC gained or lost double-digit valuations given its proven volatility.”

Dudko said this would help businesses better understand how to participate in the crypto economy and insulate themselves from unforeseen risk.

DeFi Technologies’ Schlaufman told Cointelegraph that his company manages the risks of holding a volatile asset like Bitcoin by maintaining a diversified balance sheet of U.S. dollars, BTC and venture investments.

He said that the company will “continue to purchase Bitcoin as we are able to,” believing the cryptocurrency will continue to appreciate in the long run.

A diversified balance sheet may be a solution to stop Bitcoin’s volatility from being a critical issue, but should that diversification also include other cryptocurrencies with different features?

Gold-backed cryptocurrencies, for example, could provide flexible exposure to the precious metal, which is already used as a treasury asset by central banks throughout the world.

Should companies adopt other cryptocurrencies?

While central banks have adopted gold as a treasury asset, companies adopting Bitcoin could expand beyond the flagship cryptocurrency to take advantage of growing opportunities in the decentralized finance (DeFi) space, assuming they are familiar with the space.

When asked for insights on choosing Bitcoin over other assets, DeFi Technologies’ Schlaufman noted that it “just makes sense” as the company focuses on crypto, and BTC has been the best-performing asset in the world over the past decade. He confirmed that the company isn’t currently considering diversifying into other assets.

BitPay’s Zielke said it is unlikely that “other cryptocurrencies will be adopted so bullishly as investments by large companies,” but said:

“I foresee more companies broadly adopting the use of cryptocurrencies, notably stablecoins, for cross-border payments and employee compensation. As a pegged asset, stablecoins offer a fast, low-cost option for sending and receiving crypto payments without volatility.”

Speaking to Cointelegraph, James Toledano, chief operating officer at self-custodial crypto wallet app Savl, said that Bitcoin is currently the primary choice for treasury reserves but added that Ethereum “seems to be the next natural choice,” as it also has a proven track record and unique value proposition thanks to its smart contract capabilities.

Toledano said that the current trend “seems to imply that the boundaries between TradFi and DeFi are eroding very quickly and that crypto is going mainstream,” which could also “accelerate the integration of digital assets into the broader financial ecosystem, influencing investment strategies, payment systems and financial regulations.”

Interestingly, retail traders — known for diversifying the space with extremely volatile tokens such as memecoins — have seemingly been losing ground to corporate holders. According to Reuters, retail participants have decreased during this market cycle.

Dudko said that retail participants led the cryptocurrency industry’s growth but claimed that corporate and institutional adoption could place “certain digital assets out of reach by either price exclusion or overall scarcity [and] could erode the industry’s egalitarian ethos that inspired many to begin their crypto journey.”

She said this rebalancing could also signal “that decentralized finance has officially been co-opted by the same forces many sought to avoid by placing value onchain.”

While growing corporate adoption further legitimizes the crypto asset class, it may also profoundly alter it.

It is unclear how the culture in the cryptocurrency space will change if the trend continues, but companies acting now may be making a strong commitment by embracing the future of finance.

Corporations are adding Bitcoin and other assets to their balance sheets due to the looming uncertainty of future inflation and monetary policy. While Bitcoin’s volatility challenges its corporate adoption, its long-term potential has swayed some companies to dive in. What will spur more companies to take the leap remains to be seen.