Adding Bitcoin to a Corporate Treasury

Traditionally, corporate treasuries have managed cash conservatively by allocating the majority of capital to what are often perceived as low-risk assets (e.g., bank deposits, money market funds, treasury bills, commercial paper, and repurchase agreements).¹ However, uncertain economic factors including inflation, interest rates, and heightened geopolitical risks may be causing corporates to reconsider the viability of such strategies. 

Starting in 2020, a trend of corporate treasuries allocating to bitcoin has emerged. Most notably, business intelligence company MicroStrategy Incorporated (MSTR) adopted bitcoin as its primary treasury reserve, initially buying 38,250 BTC for $425 million between July and September 2020.² In a similar move, global payments company Block Inc. (SQ), formerly known as Square, which supports bitcoin buying and selling via Cash App, started purchasing $50 million worth of bitcoin (or 4,709 bitcoin) in October 2020.³ Since then, dozens of companies and institutional investors including Stone Ridge, Semler Scientific (SMLR), and Tesla (TSLA) have followed in also announcing bitcoin allocations.^4,5,6

Since our original article in 2020, macroeconomic conditions have changed significantly and bitcoin adoption has continued to grow. In this piece, we re-examine the risks corporate treasurers continue to face since the government's unprecedented fiscal and monetary policy in 2008, which became exacerbated in 2020. We also provide updates on companies that made initial bitcoin allocations over the past four years and look at why more corporate treasurers may consider a balance sheet allocation to bitcoin. 

Post-COVID Economic Uncertainty and New Corporate Treasury Challenges

Government and central bank responses to the COVID-19 pandemic abruptly pivoted away from the economic environment that businesses had come to expect since the Great Financial Crisis in 2008. As a result, common corporate treasury functions, such as cash and liquidity management, operational risk management, and capital optimization have faced several challenges in new and seemingly uncertain economic conditions.

Cash Flows and Profitability

Since the Federal Reserve and other central banks raised interest rates to their highest levels and at the fastest rate in decades from 2022-2023, which remained high well into 2024, corporate balance sheets, cash flows, and profitability, now face new economic challenges. The higher cost of capital and decline in cash flows raised the importance of having excess funds, liquidity, and uncorrelated investments on hand to recession-proof business models and better withstand crises.⁷

Interest Rates

After over a decade of historically low or near-zero interest rates, the Federal Open Market Committee (FOMC) has begun more actively adjusting the Federal Funds Rate. From slashing interest rates to near-zero in early 2020 to the fastest and largest rate hike in U.S. history from 2022 to 2023, corporate treasurers have to more closely monitor how this fluctuating variable affects corporate treasury strategy.

Low interest rates can be a double-edged sword for corporate treasury departments. On one hand, companies may take on new debt or refinance existing debt at less expensive rates. On the other hand, companies with excess cash suffer because they cannot earn attractive yields via traditional income-producing investments. Additionally, companies sitting on substantial excess cash and low-yield financial instruments may face pressure from shareholders for holding unproductive funds. 

Similarly, high interest rates also have trade-offs. While taking on new debt or refinancing existing debt is more expensive, companies can benefit from earning attractive yields via traditional income-producing investments. Companies that are well capitalized and highly liquid may also find themselves in a more secure financial position where they can expand or acquire new or struggling competitors that heavily relied on a low-interest environment.  

Money Printing and Inflation

While inflation is not a new trend, the magnitude and coordinated nature of monetary and fiscal policy in response to the COVID-19 pandemic has been, for lack of a better word, unprecedented. According to McKinsey’s study of 54 economies that represent 93% of global GDP, governments announced $10 trillion in stimulus in two months, three times more than they did during the 2008-09 Global Financial Crisis (GFC).⁸ After the initial pandemic stimulus measures, central banks kept monetary policy loose (interest rates low) until early 2022. However, large fiscal deficits have continued virtually unabated.

As measured by M2, the Federal Reserve’s estimate of the total money supply minus retirement balances, the Fed has recently returned to expanding the broad money supply.⁹ If the Fed’s proclivity to return to historically low interest rates holds true, it could create more potential situations where too many dollars are chasing too few assets and/or goods and services. In other words, these central bank monetary policies could lead to inflation and a more rapid decline in the purchasing power of fiat currencies.  

This scenario has already become reality for corporates with the consumer price index (CPI) rapid ascension in 2021-2022, eclipsing 9% in June 2022 and stabilizing around 3-4% starting in Q2 2023, well above the historical norm of 1-2%.¹⁰ This surge and sustained level of inflation has caused the purchasing power of corporate treasuries’ cash to decline relative to the price of goods, services, and investments.

Investment analyst and writer 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).¹¹  

Depending on the type of business, corporations could be impacted 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.

Why Corporate Treasurers May Look to Invest in Bitcoin 

Anyone with a significant cash position–retail investors, institutional investors, and, since 2020, public companies–is evaluating how to address this unique macroeconomic situation and central banks’ inflationary monetary policy. Several of these stakeholders have concluded that the current economic situation and regulatory updates have called for an unprecedented response–bitcoin. 

Regulations

Numerous regulatory developments around the world regarding digital assets have given investors more confidence in bitcoin as an investment. With evermore market data and price history, digital asset-friendly regulations, such as the European Union's (E.U.) Markets in Crypto Assets (MiCA) legal framework and the U.S. SEC’s approval of a spot bitcoin exchange-traded product in January 2024, have offered investors and companies some assurance and clarity for which they have been looking.^12,13 

FASB Accounting Rule Change

In December 2023, the Financial Accounting Standards Board (FASB) updated its guidelines for how companies should account for and report bitcoin and other digital assets on their corporate balance sheets.¹⁴ These new rules benefit companies that hold bitcoin by allowing them to use fair value accounting, finally allowing companies to also mark assets up to market. Previously, companies were only allowed to mark digital asset positions down. The new guidelines could give a better view of the company's financial statements and, therefore, financial health by showing a more accurate representation of the true value of bitcoin held.

Bitcoin Price Performance Over Time

As a thought experiment, consider what the average S&P 500 company’s balance sheet would look like if they had invested just 1% of their corporate treasury balance in bitcoin over the last five years. Assuming an average treasury size of $10 billion, consider if a 1% ($100 million) allocation to bitcoin was made in June 2019 at $10,000. Despite an initial drawdown and periods of volatility, the bitcoin position would have eventually recovered and grown to approximately $700 million by June 2024. While the company could face short-term earnings volatility, the company’s long-term financial performance would be significantly enhanced, especially during high inflationary periods that have followed the onset of the COVID-19 pandemic.

Corporate Treasurers Allocate to Bitcoin

Bitcoin’s potential to address challenges created by the current economic environment has led multiple companies, including Block, MicroStrategy, Semler Scientific, and Stone Ridge Holdings Group, to make a balance sheet allocation to bitcoin. 

Block Inc. (formerly known as Square)

Under Block CEO Jack Dorsey’s leadership, Block has positioned bitcoin as having the potential to be a more ubiquitous currency in the future, leading the company to make an initial $50 million balance sheet investment in bitcoin (1% of total assets as of Q2 2020).

According to Block, this complements the company’s bitcoin services (Cash App), development efforts (Spiral, formerly known as Square Crypto), and consortium efforts (Cryptocurrency Open Patent Alliance). Block’s justification was to financially align with its mission of furthering economic empowerment and facilitating a more inclusionary financial system.¹⁵ Since then, Block purchased another $170 million of bitcoin in February 2021, bringing their total holdings to approximately 8,027 bitcoin.¹⁶ In 2024, Block announced under their corporate strategy that Block Inc. will be using 10% of their bitcoin profits to buy more bitcoin for their balance sheet, effectively adopting a dollar-cost average strategy.¹⁷ At the time of writing, the current value of Block’s bitcoin holdings is ~$572 million.¹⁸    

MicroStrategy

MicroStrategy (MSTR) was the first public company to make a substantial balance sheet allocation to bitcoin (starting with $250 million in August 2020 and dozens thereafter), resulting from its new capital allocation and treasury management strategy on capital in excess of working capital requirements.¹⁹ The decision was driven by the company’s search for a new treasury reserve asset that protects against asset inflation.²⁰ According to MicroStrategy CEO Michael Saylor, the company’s $500 million in cash was “a melting ice cube.”²¹ This led Michael Saylor, the broader company and board of directors to contemplate and eventually allocate a significant amount of capital to bitcoin.

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 (i.e., because it is scarcer and more inelastic) and offers the potential asymmetric upside that big tech offered in the early 2000s.^22,23

MicroStrategy has also engaged in a variety of financing strategies to accumulate more bitcoin for the company’s balance sheet. Most notably, this has included the issuance of multiple convertible notes. MicroStrategy now holds 214,400 bitcoin as of Q1 2024. At the time of writing, the current value of MicroStrategy’s bitcoin holdings is ~$15.2 billion.¹⁸   

Stone Ridge Holdings Group

Stone Ridge Holdings Group (SRHG) is the parent company of Stone Ridge Asset Management (a $10 billion asset manager) and New York Digital Investment Group (NYDIG). SRHG announced in 2020 that it had more than 10,000 bitcoin 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.²⁴ Since the initial purchase of ~10,000 bitcoin, it appears that Stone Ridge has maintained its bitcoin position as part of its primary treasury strategy. At the time of writing, the current value of Stone Ridge’s bitcoin holdings is ~$712 million.¹⁸ 

Semler Scientific

Semler Scientific (SMLR) is a biotechnology and healthcare company that develops, manufactures, and markets products and services that help to combat chronic diseases. In May 2024, Semler Scientific announced its adoption of bitcoin as its primary treasury reserve asset along with the purchase of 581 bitcoin for $40 million in aggregate.²⁵  In a public statement, Semler Scientific's Chairman Eric Semler cited bitcoin’s finite supply cap, verifiable scarcity, and hard asset qualities as enticing reasons for making an allocation: “We believe [bitcoin] has unique characteristics as a scarce and finite asset that can serve as a reasonable inflation hedge and safe haven amid global instability. We also believe its digital, architectural resilience makes it preferable to gold, which has a market value of approximately 10 times that of bitcoin. Given the gap in value between gold and bitcoin, we believe that bitcoin has the potential to generate outsize returns as it gains increasing acceptance as digital gold.” At the time of writing, the current value of Semler’s initial bitcoin purchase is ~$42 million.¹⁸

How Bitcoin Can Address the Current Economic Climate

Cash Flows and Profitability

As discussed in our report on Bitcoin’s Role as an Alternative Investment, bitcoin was generally uncorrelated to the demand shocks created by the health and economic crisis. Therefore, 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 economy’s state. 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 ensuring enough liquidity to meet short-term obligations.

Interest Rates

Assets like bitcoin and gold are criticized for not directly generating yield. However, during periods where yields are equal to or below zero, the opportunity cost of an allocation to bitcoin drops significantly. In fact, 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. return profile increases significantly. 

However, during high-interest rate environments in which market performance could be tempered, bitcoin provides a mostly uncorrelated asset that can reduce overall risk by not being overly dependent on traditional financial assets. Historically, bitcoin has outperformed even the most performant and high-risk traditional investment assets since its inception.²⁶ If high interest rates are a monetary response by central banks to reduce higher-than-average inflation, then corporate treasurers may view bitcoin’s verifiable scarcity and fixed monetary policy as a hedge against central bank monetary debasement. 

Money Printing and Potential Inflation

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. This can be seen by the Federal Reserve and other central banks’ monetary response to significant macro events, leading to printing significantly more money than has been done in the past and, ultimately, historically high inflation. In fact, the International Monetary Fund (IMF) and National Bureau of Economic Research (NBER) have published papers asserting that central banks are incentivized to print money to artificially decrease their national debts by devaluing the purchasing power of their own fiat currency.^27,28 

The challenges of this economic environment, combined with Bitcoin’s inelastic and predictable monetary policy and the growing importance of these characteristics, have helped to drive bitcoin’s “store of value” narrative. In response, some institutional investors and companies have started to view bitcoin as an emerging store of value that could benefit from asset inflation of fixed quantity assets. Another perspective is that bitcoin could act as a wealth preservation tool in light of purchasing power loss of fiat currencies due to potential consumer price inflation.

Summary of Risk Management with Bitcoin

As discussed above, treasurers are exposed to multiple risks in managing cash and many of these risks are heightened due to the current evolving economic environment. 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.