Why Cash and Gold Fall Short: Bitcoin's Role in Modern Corporate Savings
In corporate finance, the traditional assets held in corporate treasuries have been under scrutiny for their ability to preserve and grow value over time. Lyn Alden, in her August 2024 analysis titled "A New Look at Corporate Treasury Strategy," sheds light on why cash and gold, long considered safe havens, are not up to the task in today's economic environment. Here, we explore why Bitcoin emerges as a compelling alternative for forward-thinking corporate treasuries.
The Inadequacy of Cash
Inflation and Monetary Dilution: Cash, or its equivalents like T-bills, has historically been a primary component of corporate treasuries. However, Alden points out that cash is dilutive over time. As the money supply grows (at an average rate of 7% per year in the U.S.), the real value of cash savings diminishes. If a corporation's cash yield is below this growth rate, which is often the case, their savings effectively shrink as a proportion of the total money supply.
A Case in Point: Imagine a corporation like Apple with $100 billion in cash. Over 20 years, with a money supply growth of 7% and cash yielding 4%, Apple's share of the money supply would decrease from 0.5% to about 0.28%, illustrating significant dilution.
The Limitations of Gold
Dilution and Performance: Gold, while scarcer than fiat currencies, still faces dilution due to annual increases in global gold supply. Over the long term, gold's price increase lags behind the growth of money supply, offering a real return that often fails to keep pace with expectations for equity investments.
Historical Context: From 1928 to 2023, gold's price increased by about 100x, while the U.S. money supply grew by 380x, showing that gold does not fully protect against the dilution of purchasing power.
Bitcoin: A New Paradigm for Corporate Savings
Zero Dilution: Bitcoin stands out with its fixed supply cap of 21 million coins, ensuring no long-term dilution. This scarcity makes it an ideal asset for long-term value preservation. Unlike cash or gold, Bitcoin's supply doesn't grow beyond this cap, providing a safeguard against monetary policy-induced dilution.
Performance and Liquidity: Bitcoin has demonstrated significant growth over the past decade, often outperforming both cash and gold. Its digital nature allows for high liquidity, making it feasible for corporate treasuries to manage without the complexities associated with physical assets like gold.
Strategic Fit for Corporations: Bitcoin offers corporations an opportunity to:
Hedge Against Inflation: With its fixed supply, Bitcoin can serve as an effective hedge against inflation, potentially appreciating in value when fiat currencies devalue.
Diversify Portfolio: Including Bitcoin in a treasury can diversify risk, particularly when it's uncorrelated with traditional financial markets.
Future-Proof Financial Strategy: As digital assets gain legitimacy, early adoption in corporate treasuries could position companies as leaders in financial innovation.
Practical Considerations for Corporate Treasuries
Long-Term Strategy: Bitcoin is best suited for savings that won't be needed for at least four years due to its volatility. However, this volatility diminishes as adoption and market maturity increase.
Partial Allocation: Companies can mitigate risk by allocating only a portion of their treasury to Bitcoin, balancing between liquidity needs and long-term savings.
Regulatory and Accounting Clarity: The recent FASB rules on crypto assets provide a clearer path for Bitcoin's integration into corporate balance sheets.
Conclusion
The traditional assets of cash and gold have served their purpose in the past, but in an era where monetary policies can devalue savings, Bitcoin offers a compelling alternative for corporate treasuries. It's not about replacing all treasury assets but about strategically incorporating Bitcoin to protect against inflation, ensure value preservation, and potentially outperform traditional investments over the long term.
For corporations looking to rethink their treasury strategy in light of these insights, Chief Bitcoin Officer stands ready to guide you through the nuances of Bitcoin investment, ensuring your company harnesses this asset's potential while managing associated risks.
Engage with Us: How does your company currently manage its treasury, and are you considering Bitcoin as part of your strategy? Let's discuss in the comments below or contact us for a personalized consultation.
