Guest Blog Written By: ICONOMI
Bitcoin, launched in 2009 by the mysterious Satoshi Nakamoto, has evolved from an obscure digital experiment into a global financial asset. As the world’s first decentralised cryptocurrency, Bitcoin’s core appeal lies in its deflationary design, finite supply, and ability to function without relying on traditional financial systems. Following on from their first guest blog, our partners ICONOMI, take a look at why corporate investors and institutional players are increasingly recognising Bitcoin as a valuable asset for diversifying their balance sheets. As an investor, could Bitcoin be an important next step for you? Have a read to discover more…
Bitcoin and Investors: The New Financial Frontier
At its core, Bitcoin is a decentralised digital currency that operates without the need for central banks or middlemen. It allows for seamless transactions between individuals and entities globally, using only the internet. But beyond being a peer-to-peer payment system, Bitcoin is now regarded as a store of value—often likened to “digital gold.”
Its primary allure lies in its scarcity. Unlike fiat currencies, which can be printed at will by central banks, Bitcoin’s supply is capped at 21 million. This finite nature, coupled with its decentralised infrastructure, has made it an attractive asset in times of economic uncertainty.
Bitcoin Tokenomics: The Foundation of Value
Bitcoin’s tokenomics revolve around its hard-coded rules designed to limit its supply and increase its value over time:
- Finite Supply: Only 21 million Bitcoin will ever exist. As of now, around 19.48 million have already been mined, leaving just over 1.5 million Bitcoin left to be created.
- Halving Events: Approximately every four years, the Bitcoin network undergoes a “halving,” where the reward for mining Bitcoin is cut in half. This means that the creation of new Bitcoin slows down significantly over time, adding to its scarcity. The most recent halving event occurred in April 2024, reducing the mining reward from 6.25 to 3.125 Bitcoin per block. This trend will continue until the year 2136.
This built-in scarcity, reinforced by halving events, helps Bitcoin retain and grow its value over time—much like gold, but with a more predictable issuance schedule. These factors have caught the attention of corporate and institutional investors looking for long-term assets.
Bitcoin vs. Gold: The New Digital Gold For Investors?
Historically, gold has been the go-to asset for investors looking to protect wealth. However, Bitcoin is emerging as a “digital gold” due to its scarcity and decentralised nature.
A potential catalyst for Bitcoin’s broader adoption is the Bitcoin Spot ETF, which many expect will drive institutional investment into the market. When the first spot ETF for gold was launched in 2004, the price of gold quadrupled and its market cap grew by $9 trillion. If Bitcoin follows a similar path, it could see a massive influx of capital. Already to date, there has been more than $20 billion of inflows into the Bitcoin ETFs since January 2024
Furthermore, Bitcoin’s recent halving event in April 2024 increased its scarcity, driving its stock-to-flow ratio (a measure of scarcity) to 120, making it twice as scarce as gold.
By 2032, Bitcoin will become 8X as scarce as gold, and the most scarce asset in the world.
Why Corporate Investors Are Adding Bitcoin to Their Balance Sheets
Corporate interest in Bitcoin has surged in recent years, driven by several factors:
1. Hedge Against Inflation and Currency Devaluation
With central banks printing more money to stimulate economies—especially during the COVID-19 pandemic—fiat currencies like the US dollar are experiencing devaluation. In response, corporate investors are seeking alternatives such as Bitcoin to safeguard their capital from inflation.
Bitcoin, with its fixed supply, offers a hedge against inflation. Companies like MicroStrategy, led by CEO Michael Saylor, have publicly shifted significant portions of their cash reserves into Bitcoin, citing its superiority over cash in preserving purchasing power. Saylor described Bitcoin as “digital gold” and argued that holding Bitcoin would protect his company’s assets from inflationary pressures caused by excessive money printing.
2. Diversification of Corporate Balance Sheets
Diversifying into Bitcoin allows companies to reduce their reliance on traditional financial instruments that may be vulnerable to macroeconomic shocks. In an era where stocks and bonds face heightened volatility, Bitcoin offers a non-correlated asset class, meaning its price movements are often independent of traditional markets.
This feature is increasingly appealing to corporations, as Bitcoin can act as a buffer against systemic risks in the traditional financial system, providing a unique way to diversify their balance sheets.
3. Bitcoin as a Long-Term Store of Value
Unlike fiat currencies or bonds, Bitcoin has demonstrated remarkable price appreciation over the long term. Since its inception, Bitcoin has delivered an average annualized return of 150%. While short-term volatility remains a concern, corporate investors with a long-term perspective are looking beyond the fluctuations, focusing on the asset’s ability to generate significant returns over time.
Furthermore, Bitcoin’s stock-to-flow ratio—a measure of scarcity—will continue to increase year after year, making it even more scarce than gold. For companies looking to preserve wealth over the long haul, this offers an attractive proposition.
Increased Adoption Among Corporate Giants
Some of the world’s most recognised corporations have already taken steps to adopt Bitcoin as part of their broader strategy:
- Tesla: In early 2021, Tesla made headlines when it purchased $1.5 billion worth of Bitcoin for its corporate treasury. Elon Musk’s electric vehicle company cited Bitcoin’s potential as both a store of value and a medium of exchange as key reasons for the purchase.
- Square (now Block, Inc.): Under the leadership of Jack Dorsey, Block has invested heavily in Bitcoin. In 2020, Square invested $50 million in Bitcoin, followed by an additional $170 million in early 2021. Dorsey has been a strong advocate for Bitcoin, often emphasizing its potential to serve as the global currency of the internet.
- PayPal and Mastercard: Payment giants like PayPal and Mastercard have also integrated Bitcoin into their platforms, allowing users to buy, sell, and hold Bitcoin, further promoting its legitimacy and driving adoption.
Bitcoin and Corporate Risk Management
While adding Bitcoin to the balance sheet offers significant potential upsides for investors, it also comes with risks. Bitcoin’s price can be volatile in the short term, and corporations must weigh this against their risk tolerance. However, for companies with a long-term perspective, these risks are often mitigated by the potential rewards.
Moreover, as more corporations embrace Bitcoin, the infrastructure surrounding Bitcoin—such as custody services, regulatory frameworks, and compliance protocols—continues to improve, making it easier for businesses to hold and manage Bitcoin securely.
Conclusion
Bitcoin’s growing role as a hedge against inflation, store of value, and diversification tool has made it an increasingly popular asset for corporate investors. With its deflationary design, decentralized structure, and increasing adoption by institutional and corporate players, Bitcoin is poised to play a critical role in modernizing balance sheets.
For businesses and investors looking to diversify and future-proof their finances, adding Bitcoin presents a compelling opportunity in the face of macroeconomic uncertainties. As we move further into a digital future, Bitcoin’s relevance in corporate strategy is likely to continue growing.
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Disclaimer: The content of this article has been provided by ICONOMI and reflects their views and insights. Nordens Chartered Accountants does not provide financial or investment advice, and this article should not be interpreted as such. We are not endorsing or recommending any specific actions or decisions based on the information provided. For personalised advice or to assess the suitability of any financial or investment strategy, we recommend consulting with a qualified financial professional.
