Coinmama is the perfect partner for CEOs looking to allocate capital to Bitcoin.
In hindsight, it seemed rather inevitable that Tesla would buy Bitcoin.
After all, the electric carmaker and its enigmatic CEO Elon Musk have a long history of being early adopters and going against Wall Street orthodoxy. Musk’s decision to deploy capital into Bitcoin felt like a natural conclusion of his long-time flirtations with cryptocurrencies. Tesla joining Microstrategy and Square by holding Bitcoin on its balance sheet has set off discussions in many boardrooms about how to invest in bitcoin as a company. If you are a CEO or CFO of a company looking to allocate your company’s cash into Bitcoin, navigating the space can be confusing. In this article, we lay out the thesis driving many institutional investors into Bitcoin and covering some of the best practices about investing in bitcoin as a company.
Many of these best practices derive from Microstrategy’s Corporate Playbook. As the pioneer of large-scale cash deployments into Bitcoin, Microstrategy and it’s CEO Michael Saylor literally wrote the playbook on how to invest in Bitcoin as a company.
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In December 2020, Saylor offered his playbook to Elon Musk when he showed interest in acquiring large amounts of Bitcoin. The Tesla CEO would eventually acquire $1.5 billion worth of Bitcoin, though there is no saying whether he took Saylor up on his offer. Saylor has since publicized his playbook in the spirit of open-source, which is required reading for any company looking to invest in Bitcoin.
As we’ll see later, the playbook contains a trove of helpful information for companies looking to invest in Bitcoin. But first, let’s understand what’s driving corporate treasuries into Bitcoin’s arms.
Why Bitcoin, Why Now: The Inflation-Hedge Thesis
Satoshi Nakomoto created Bitcoin in January 2009, as the Great Recession’s full extent started to be felt. The financial world was in tatters, and Satoshi blamed the uncontrolled money printing and credit bubbles for the destruction.
In the 12 years since the pace of money printing has accelerated rapidly. During the last 12 months, the Federal Reserve has printed nearly $3 trillion out of thin air, putting the total M1 money supply at close to $7 trillion. While fiat currencies are almost certain to weaken in purchasing power over time, the last year has awakened fears of even more drastic hyperinflation amongst investors.
Today’s interest rate environment means that investors and savers don’t have many options when looking to escape the ravages of inflation. Across most of the developed world, bonds and savings accounts are yielding interest rates close to zero. More than that, 11 countries have negative-yielding bonds as of the time of writing. Citizens in countries like Slovakia, Denmark and Finland are paying for the privilege of lending money to their government, which only makes sense if they fear losing even more to inflation if they keep their money in cash.
Instead, investors have been flocking to scarce assets as a way to store their value effectively across times. Gold hit a new all-time high of $2,000 an ounce back in July, before retracing slightly. Stocks, especially tech stocks, are similarly booming as investors rush to exit unproductive cash and enter into return-bearing investments.
And then there’s Bitcoin. For many institutional investors, Bitcoin’s provable scarcity and predictable supply put it in the same category as gold. One such investor is Paul Tudor Jones, who commented that “Bitcoin reminds me of gold when I first got into the business in 1976.” when explaining his decision to buy Bitcoin.
What is the Historical Performance of Bitcoin Like?
As both the inflation-hedge narrative and corporate adoption of Bitcoin continue to gain traction, more and more eyes are drawing to Bitcoin. Companies have started to dig into Bitcoin’s performance to determine whether an investment in Bitcoin is worthwhile.
So how has Bitcoin performed over different periods?
Bitcoin has absolutely dominated all the other asset classes on a pure return basis. It’s especially notable to watch Bitcoin’s rise since the start of 2021, compared to the slight decline in gold prices.
Even when taking risk into account, Bitcoin dramatically outperforms its competitors. To do this, we calculate the Sharpe ratio for Bitcoin and compare it to the Sharpe ratio of its peers. The Sharpe ratio is calculated by dividing the returns by the standard deviation of returns, a widely-accepted benchmark for risk. The lower the standard deviation, and hence the lower the risk, the higher the Sharpe ratio of an asset.
A rule of thumb with Sharpe ratio is that anything over 1 is considered good, anything over 2 is considered very good and anything over 3 is exceptional.
As we can see, Bitcoin has enjoyed both tremendous returns and experienced high volatility. This is due to the fact that the last 12 months coincided with the mass economic disruption caused by COVID, and governments’ money-printing response.
As the CEO or CFO, you have a duty to maximize risk-adjusted returns for your shareholders. Despite a volatile year driven by macro upheavals, Bitcoin continues to outperform its peers on a risk-adjusted basis.
Coinmama Business is Open For Business
Every CEO on the planet is asking himself the same question after watching Tesla. Is now the time to allocate some of my company’s funds into Bitcoin? As industry veterans that have been around for over two-thirds of Bitcoin’s entire lifetime, Coinmama is the ideal trusted partner for the innovative CEO who wants to connect their company’s treasury to the future. We are proud to launch Coinmama Business, a unique service for corporate buyers of Bitcoin, no matter the size.
Our white-glove corporate offering includes:
- Your personal Coinmama Consultant accompanying you through the entire phase of the process.
- Security experts guide you through the best practices of storing your Bitcoin and keeping it safe.
- Compliance guidance that is tailor-made to your company.
- Strategic consulting to help your company craft a bespoke trading policy.
- A fee discount – Coinmama Business clients only pay a 2.5% fee for the entire service.
Taking Good Care of Custody
Correct custody is undoubtedly one of the challenges when it comes to Bitcoin. Unlike traditional assets, Bitcoin must be stored in a precise way to be considered safe.
The internet is filled with stories of would-be moguls losing hundreds of millions of dollars in Bitcoin because they did not take care of custody correctly. Lost passwords, misplaced hard drives, exchange hacks, and other catastrophes have been known to cause damage from time to time. Securing one’s Bitcoin is vital, and all the more so when it’s held on behalf of a company.
When it comes to Bitcoin custody, companies have a few options at their disposal. While Microstrategy recommends that companies engage a qualified custodian to store Bitcoin on their behalf, this may not be suitable for smaller companies. In any case, companies must be aware of the primary storage methods, whether they self-custody or employ a qualified custodian’s services.
- ‘Hot’ wallets keep Bitcoin keys online, which offers more comfortable liquidity but is also at a greater risk of theft.
- ‘Cold’ wallets keep Bitcoin keys offline in physical storage, making them inaccessible to online theft but slowing down access time for trades.
- Multi-signature wallets (multi-sig)
According to Microstrategy, companies should ‘consider multiple custodial accounts for diversification,’ which includes a mixture of all the three methods listed above. Nevertheless, their playbook advises companies ‘to maximize holdings in cold storage, which is the optimal approach for “buy/hold” investors (i.e., not an active trader) and would be better for any risk disclosures.”
As a Coinmama Business VIP client, you can take advantage of our wide-ranging expertise when building a custody strategy for your Bitcoin.
Compliance Best Practices
When it comes to deciding how to invest in bitcoin as a company, corporates don’t have decades of regulatory precedents to lean on. For that reason, it falls upon the pioneers like Microstrategy to help regulators decide on the rules of the game. Microstrategy’s ‘Bitcoin Trading Policy’ document sets out a company’s compliance officers’ role in preventing employees and their networks from trading on any material nonpublic information. It also briefly touches upon the accounting challenges when it comes to Bitcoin.
While the document provides a helpful overview of Bitcoin from a compliance perspective, companies investing in Bitcoin will need to adapt the compliance policy’s details to their circumstance. As a Coinmama Business VIP client, you can leverage our compliance expertise when crafting a Bitcoin trading policy for your company.