Bitcoin’s Potential as a Collateral Class


Today I’m going to weave together three seemingly unrelated stories from the past week to highlight a trend that I believe we are largely overlooking. Ready?

First, Tesla’s Q1 earnings release revealed that the company sold $272 million worth of its bitcoin holdings in the first quarter. According to its CEO, Elon Musk, it did so to test the market’s liquidity. The $101 million it added to the company’s quarterly profit didn’t hurt, either.

Second, crypto lender Genesis Trading (a subsidiary of DCG, which is also the parent of CoinDesk) published its Q1 2021 report, which showed that the amount of loans outstanding broke through $9 billion, an increase of 136% from the previous quarter.

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Third, U.S. Federal Reserve Chairman Jerome Powell spoke about the macroeconomic environment, holding firm to the expectation of an average of 2% inflation over the next few years.

What do these three stories have to do with one another? The answer lies in looking through the growing use of bitcoin as a reserve asset on corporate balance sheets to why companies want to do so today, and why they are likely to want to do so in years to come.

Balance sheets

Before we bring in this week’s narratives, let’s refresh the balance sheet asset story.

Companies investing in bitcoin as a reserve asset have usually cited value protection as the main reason. Bitcoin will hold its purchasing power against the inevitable debasement of fiat, the argument goes. Since corporate treasury’s priority is ensuring the business has the funds it needs for operations and strategic investment, today as well as in the future, some advocates argue that bitcoin is an ideal treasury asset, even though the volatility is a concern.

Software company MicroStrategy kicked this off last August by putting all of its corporate treasury into bitcoin; the firm has continually added to its holdings, even raising capital to do so. In February, it held an event to educate other companies on the advantages and logistics that was reportedly attended by over 8,000 interested parties. Other firms making bitcoin reserve allocations include Square, Aker and Meitu, and this week South Korean-Japanese video game publisher Nexon revealed a $100 million bitcoin purchase (equal to approximately 2% of its cash and cash equivalents).

And then there’s Tesla. After a public back-and-forth on Twitter between CEO Elon Musk and MicroStrategy CEO Michael Saylor, expectations rose that Tesla would soon join the ranks. The company did not disappoint: in February, it announced a $1.5 billion bitcoin purchase. Its Q1 2021 earnings released this week showed that the company sold

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