I'm becoming increasingly persuaded that bitcoin will become a significant reserve asset class for corporate treasuries. This is set out well in the following links.
Why Corporate Treasurers May Consider Bitcoin
Bitcoin Macro Strategy with Michael Saylor and Ross Stevens
In particular, I see corporate and bank treasuries using digital assets as collateral. For example, if Tesla needed to borrow $1B overnight, it can deploy, say $1.2B in BTC as collateral. This collateral is easily liquidated 24/7/365 in the case of failure to pay back the loan. But otherwise, Tesla avoids capital gains implied in simply selling $1B in BTC to cover the overnight need for cash.
Secondarily it is useful that BTC holds value long term. Over the last few years BTC and TSLA has gained value at a comparable rate. This means that if Tesla holds BTC in lieu of excess cash, this does not dilute the stock. No one expects the return on treasury asset to rival the return on operational assets in a company, but a healthy return does avoid the situation where the shareholder is better served by a stock buy back than for the company to sit on excess cash. If Bitcoin grows at a minimum of 10%, then Tesla does much better holding any conventional reserve assets. Volatility to the upside is no problem. Tesla is already 60% ahead with it's $1.5T purchase of BTC, so it can tolerate substantial downside volatility and still come out better than hold cash equivalents.
Kathie Wood has mentioned that if major corporate treasuries simply held 10% of their reserve assets as BTC, this would add $200,000 to the value of 1 BTC. At $56,000/BTC, the market cap is now about $1.034T. At $256k/BTC, the market cap of BTC goes to $4.74T. The extra $3.7T in value is simply 10% of the some $37 in assets that corporate treasuries hold. The notion of scarcity here is simply that the supply of BTC is non-responsive to demand. Thus, if global corporations moved to hold a certain fraction of their treasury reserves as BTC, that demand would directly inflate the value of BTC.
For example, to see why this matters. Consider the mortgage crisis in 2008. Mortgage-backed securities were in very high demand. They were seen as safe investments. But demand for high quality bonds was so high that it incentivized mortgage lenders fill MBS with a lot of low quality loans. The supply of MBSs rose to meet demand and shift homeownership rates to historic highs. But this cheap financing lead to overpriced home values, above sustainable levels. Economic weakness led to the collapse of the entire housing bubble.
The point here is that demand for financial assets needs an outlet that does not lead to glut whether that be MBSs and homes, or oil and gas. Using physical commodities as financialied assets to "hedge" inflation is a really bad idea from an environmental impact point of view it not also from the viewpoint of creating major economic dislocations like the mortgage crisis. Bitcoin and other digital assets do not increase the supply of those assets in response to demand.
So as corporations experiment with adding bitcoin and other digital assets, there will be an initial inflation in BTC market cap, but eventually other treasury assets will need to become more attractive relative to digital assets to reach some equilibrium. Bitcoin can safely store value without creating gluts and other dislocations when businesses need safe value storage. But as the global economy heats up and needs more cash invested in other things, perhaps some of that comes out of the bitcoin market cap. But this downside is not really a problem, if there are higher return alternatives to invest in. For example, if Tesla had an opportunity to do something better than hold BTC, it would do it, and shareholders would be glad to liquidate some BTC. Corporations around the world would face similar opportunities. Thus, bitcoin market cap can keep growing until better investment opportunities come along.
I see Bitcoin as essentially a parking lot for surplus corporate cash. Banks and corporate treasuries can trade these tokens amongst each other so as to meet needs for liquidity.
These view are my own and do not reflect the views of my employer.
