Inflation winds stiffen as Bitcoin ballast on balance sheets proves its value

As corporate finance leaders prepare to set sail into the post-COVID-19 world amid inflation storm warnings, an increasing number of corporations are taking stock of their treasury reserve holdings. If the worst happens, and the dollar and other reserve currencies weaken, are they sure that all their balance-sheet cash is lashed down securely?

It surely hasn’t escaped their notice, after all, that a number of public companies that “joined” Bitcoin (BTC) in a big way over the past year recently broadcast strong Q1 2021 earnings. Square, which holds $472 million worth of BTC, for instance, reported a quarterly gross profit increase of 79% year-over-year, doubling analysts’ expectations. While Tesla, which plunked down $1.5 billion — 8% of its cash — into BTC in February, posted record earnings with revenues surging 74%. MicroStrategy, which made Bitcoin its primary corporate reserve in 2020, notched a 10% gain in Q1 revenues.

“If inflation picks up, or even if it doesn’t, and more companies decide to diversify some small portion of their cash balances into bitcoin instead of cash, then the current relative trickle into bitcoin would become a torrent,” wrote storied investor Bill Miller in a market letter earlier this year. Already, “companies such as Square, MassMutual, and MicroStrategy have moved cash into bitcoin rather than have guaranteed losses on cash held on their balance sheet,” he added.

Elsewhere, Ark Investments commented in a company newsletter: “Microstrategy, Square, and now Tesla are showing public companies the way to add bitcoin as a legitimate alternative to cash on their balance sheets.”

But Bitcoin remains a volatile asset — as the most recent BTC price drop to $46,000 reminded users again — so maybe its embrace by corporate treasurers is really just a short-term happenstance? On the other hand, if the trend does have legs, is it really appropriate for all companies? If so, at what level of allocation is appropriate?…

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