SUBSCRIBE

Multiple public companies have adopted bitcoin by adding it to their treasury reserves, including Microstrategy, Tesla, Square, Block, Semler Scientific and more. But it’s not just major public companies that are embracing bitcoin. Governments are participating. Countries like El Salvador, Norway and Bhutan hold bitcoin.

President-elect Donald Trump has announced plans for the United States to implement a bitcoin strategic stockpile and the Senate has proposed the federal government acquire 1 million bitcoin.

Thousands of private businesses across the United States also have already adopted bitcoin as a treasury asset and you can too.

Understand bitcoin and dollar reserves. Oversimplified, bitcoin is a digital ledger, similar to dollars in the bank. However, instead of a bank or government controlling the ledger, bitcoin is decentralized, immutable and is accessible and verifiable by anyone with an internet connection.

Importantly, there will only ever be 21 million bitcoin, no one can create more. It is the first absolutely scarce asset in our world. U.S.-based businesses hold approximately $7 trillion in cash on their balance sheet, in their treasury. However, cash loses its purchasing power. Many businesses generate nominal returns on their reserves through money market funds, CDs and treasury deposits. But these investments fail to outperform inflation.

In a world where the purchasing power of our dollar is a melting ice cube (albeit, still substantially stronger than other fiat currencies), bitcoin offers a solution with asymmetric upside that is largely uncorrelated to traditional assets.

The price of bitcoin is volatile, but the volatility has been skewed to the upside. Over the last decade, bitcoin has outperformed every other major asset. The answer to volatility is allocation.

Allocating 100 percent of reserves to bitcoin could be problematic if required to liquidate at an inopportune time. However, even a modest 3 percent allocation with the remainder in non-interest bearing cash has been sufficient to protect against the dramatic rise of inflation since 2020.

In addition to inflation and monetary debasement risk, having cash in the bank comes with forfeiture and counterparty risk. Over the last two decades, an average of 25 banks failed each year and countless fully legal businesses were debanked or had assets frozen or confiscated. Banks hold a small fraction of their deposits and FDIC insurance only covers up to $250,000, with total FDIC assets amounting to around 2 percent of aggregate bank deposits. Access to funds also poses a risk when using traditional banks, which may struggle with international transactions, operate only 8 hours a day, 5 days a week, and are closed on holidays — making them available less than 25 percent of any given year.

Bitcoin offers inexpensive, frictionless, immutable, censorship resistant and 24/7/365 payments anywhere in the world without a counterparty. Nonetheless, for most bitcoin owners today, the primary use case is store of value. Businesses that want to complete transactions during bank downtimes, require a faster settlement option than the ACH system, have international payments or want to avoid the 3 percent credit card fees are all excellent candidates to use bitcoin as a payment method today.

Identify your approval process. To adopt bitcoin as a treasury reserve, you must understand what approvals are necessary. If you have co-owners or a board of directors, you may need to obtain their approval. This step will be unique to each business, but the plan, the approval and the decision-making process should be documented appropriately.

Develop a plan. Once you identify the necessary approvals, you should develop a plan for approval and implementation. The more complex your approval process, the more detailed your plan should be. Your plan should consider important questions, for example: How will you acquire bitcoin? How much will you purchase? Will you continue to buy with profits? How will you secure your bitcoin? It’s okay if you don’t have all the answers. Instead, consider who gets to make the decisions (e.g., the board or a special committee). Review existing plans from companies like Microstrategy for examples.

Decide how to acquire and custody bitcoin. There are a variety of ways to acquire and store bitcoin. You can buy exchange-traded fund (ETF) shares through a brokerage account or app from one of the dozen bitcoin ETFs, including major asset managers like Blackrock and Fidelity. While you don’t directly own the bitcoin in this scenario, you can still benefit from its price appreciation.

You can purchase bitcoin from an exchange (such as River, Swan or Coinbase). You may then elect to keep your bitcoin on the exchange or move them to a more secure custodial solution. There are banks and credit unions that also offer custodial solutions. Right here in Minnesota, St. Cloud Financial Credit Union has built a unique hybrid custodial solution called the CU Digital Asset Vault.

Some businesses may choose self-custody for their bitcoin, which many consider the most secure option. However, with self-custody, you are the single point of failure. So, make sure you have a solid plan and process to account for and mitigate risks such as an untimely death, user error or loss of a passphrase. One of the most popular options for multi-owner businesses is a multi-signature set up offered by companies like Unchained or Onramp which eliminates the single point of failure.

Closing thoughts

Depending on your knowledge and understanding of bitcoin, there is a security model right for you. While it may seem daunting at first, it starts with education. There are various local nonprofits like the MN Crypto Council and the MN Blockchain Initiative that can help you learn and connect with others who are on the same journey.

By diversifying treasury reserves to include an allocation to bitcoin, businesses can protect against inflation and the monetary debasement of our fiat dollars, mitigate forfeiture and counterparty risk and ease liquidity constraints. Consider if a bitcoin strategy is right for you and join the thousands of other small businesses that are protecting their reserves using bitcoin.

*This article originally appeared in the November/December 2024 edition of Upsize Minnesota. Repurposed and republished with permission of the publisher.