Why Institutional Adoption Could Make Bitcoin Much Safer

We may have seen the last of the ultra-wild swings in Bitcoin

The recent spate of corporations adding Bitcoin (CCC:BTC-USD) to their balance sheets looks to be a major turning point for the cryptocurrency. Tesla’s (NASDAQ:TSLA) recent $1.5 billion investment into Bitcoin is important. Twitter (NYSE:TWTR) stock prices jumped on news that it was considering doing the same.

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Those two companies are far from the only ones who may move away from the dollar and toward the crypto. This signifies a fundamental shift for Bitcoin as institutions are accountable to far more people than individual investors. 

This trend toward institutions beefing up their balance sheets with Bitcoin is sure to increase the volume of conversations around price implications. In fact, it’s already underway.

Tesla has invested $1.5 billion of its reserves in Bitcoin. Elon Musk’s company plans to accept the cryptocurrency in some form later on. Twitter surged upward to eclipse $70 per share on Feb. 12 after Jack Dorsey announced that his company was simply considering a Bitcoin addition to its reserves. 

These two corporations are the most recently involved in this conversation, but they are hardly the only ones. There are many large corporations with massive market capitalizations underpinned by significant BTC holdings.

Microstrategy (NASDAQ:MSTR) is likely the most notable with 34% of its market cap attributable to Bitcoin holdings within its reserve, but there are multiple institutions within the private and public sphere looking to leverage Bitcoin as a treasury strategy. I’ve found that BitcoinTreasuries.org has the most comprehensive listing available. 

A Closer Look at Bitcoin

It seems unlikely that larger corporations are going to follow in the footsteps of Tesla. Tesla can certainly be considered a contrarian in the corporate world. 

The truth is, corporate treasuries are very conservatively run. I’d venture to guess that most like it that way. The corporate world values protecting cash reserves which means volatile holdings like cryptocurrency are unlikely to play much of a role if any.

Proponents of traditional treasury management think the idea is flawed. Treasury Partners managing director Jerry Klein noted that there is little reason to do so owing to the volatility that assets like Bitcoin introduce to corporate reserves. 

While bigger corporations are highly unlikely to follow suit, smaller companies certainly may. I can envision a scenario in which companies decide to invest significant amounts of Bitcoin into their respective reserves in the place of U.S. dollars. 

Just imagine the optics of such a decision. Small-cap companies that take such a chance could easily garner massive attention from groups of traders with a penchant for risk and a distaste for financial fundamentals. You might even see a subreddit pop up dedicated to small-cap companies with significant Bitcoin treasury exposure. 

These companies can then issue stock when their price pops and raise a bunch of capital. It wouldn’t surprise me one bit. 

Sea Change for Bitcoin

Because institutions are taking significant positions in Bitcoin this marks something new. This means that if a serious price decline happens the ramifications are amplified. 

When Bitcoin dropped to below $11,000 on Dec. 22, 2017, after nearly reaching $20k a few days prior things were different. At that time there was no narrative around corporate treasuries with Bitcoin exposure. It was much more about individuals losing out massively at that time. 

What I think this means is that Bitcoin actually benefits in that it will have a bit higher of an anchor point from now on. It is much harder for the value to drop as quickly as it did in 2017 because of the nature of corporate power as opposed to individual power. That’s why I think the Tesla news marks a new, more solid price base for Bitcoin. Despite the narrative, BTC is now safer.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.