Bitcoin, a Superior Reserve Asset
Over the past few months, and for the first time in Bitcoin's history, we have witnessed several publicly-traded companies adopt Bitcoin as a reserve asset on their balance sheets, eschewing the fiat U.S. dollar in the process:
Microstrategy is notable in being the first publicly-traded, non-crypto company to make the decision to hold Bitcoin as a reserve asset. Last week, a more widely-known company in Jack Dorsey's Square followed suit, investing 1% of their assets into Bitcoin holdings.
Let's briefly discuss a few aspects in regards to what makes Bitcoin a superior reserve asset, and make a prediction for the future of Bitcoin as it will function in this regard.
Cash is a wasting asset, as the U.S. Federal Reserve has the written objective of devaluing the dollar by at least 2% a year, and recently made the novel policy decision to try to go above that 2% threshold in the future.
Publicly-traded companies, which have the fiduciary responsibility to maximize shareholder value, are starting to realize that having large amounts of a wasting asset on their balance sheets is an antithesis to creating value for shareholders.
Bitcoin is the only asset in the world that has a fixed supply, and is thus immune from inflationary pressures that erode value, so it is an ideal and natural candidate to replace the U.S. dollar as a reserve asset.
Game theory will demand that more firms follow the lead of companies like Microstrategy and Square, because once it is commonly realized how preferable Bitcoin is in lieu of cash on a balance sheet, it will become extremely expensive for companies to wait any longer to make the decision to replace their cash reserves for Bitcoin. There will only ever be 21 million Bitcoins, so each company using the digital currency as a reserve asset is diminishing the supply available for purchase as well as raising the Bitcoin price.
I predict that we are just seeing just the beginning of Bitcoin's use as a reserve asset for large firms, and the companies that are first in line to make the shift away from the U.S. dollar will reap the largest benefits.
I also predict that as the Bitcoin market matures, with respected entities like Paul Tudor Jones and Square participating, central banks will begin to dip their toes into Bitcoin. Make no mistake, central bank participation in Bitcoin is inevitable, and the first ones to participate will reap the largest rewards, similar to what we have seen now from individual investors as well as publicly-traded companies.
You should always consider seeking financial advice from a licensed advisor before making decisions with your money, and you should not consider anything I write as financial advice but merely my opinion. Getting your financial house in order is a prerequisite for Bitcoin saving, in my opinion.
Disclosure: I am not a financial advisor and none of my commentary should be considered financial advice. Always do your own research, as investing has much risk involved.