With the coronavirus pandemic continuing to wreak havoc on the global economy, forward-thinking corporate treasurers are taking extraordinary actions to propel through the crisis.
On Wednesday 20 January 2021, our Chief Financial Officer, Ralph Payne, and Michael Aandahl, Head of Digital Treasury at Ingka Group (IKEA), led a webinar hosted by the Association of Corporate Treasurers (ACT) to discuss the new trend in corporate treasury: Bitcoin allocation.
A cross-section between technology, currency, and a store of value, Bitcoin is “emerging in 2021 as the new compelling institutional-grade safe haven asset.” This is at least according to MicroStrategy CEO, Michael Saylor.
In a series of stunning announcements last year, MicroStrategy, a provider of business intelligence, mobile software and cloud-based services, adopted Bitcoin as its primary treasury reserve asset by investing $475m into the crypto. The Nasdaq-listed company also recently issued debt to purchase another $675m in Bitcoin.
Recent announcements from other major companies (e.g Square, NexTech) to shift a significant portion of their treasury and assets to Bitcoin illustrates that the allure of cryptocurrency has finally reached corporates.
As a new asset on the scene that not only offers diversification but also exceptionally wild growth (just ask Mr. Saylor), the webinar’s moderator, Narseh Aggerwal, Associate Director at the ACT, had a number of questions for the speakers about the most common myths concerning cryptoassets.
Ralph and Michael set the record straight on Bitcoin’s and crypto mistruths and realities, clarifying the following:
While it's true that cryptoassets were often used by malicious actors, this is an outdated and tired misconception.
Back during the 2017 market boom, digital assets were less understood and even more unregulated giving rise to fraudulent projects and cybercriminals to target the space.
Ralph proposed that recent moves to bring digital assets under a regulatory framework by the UK, U.S and various other governments could represent a sea change in how companies may increasingly allocate Bitcoin on their balance sheets.
Last year, the European Commission issued a proposed regulation for the issuance and provision of services related to cryptoassets. The UK followed suit with HMT issuing a consultation on cryptoassets and stablecoins in January 2021, following an earlier consultation on crypto asset promotions, and the launch of an official register of UK firms dealing in cryptoassets.
Under the Trump Administration, the United States made some remarkable strides in bolstering crypto regulation. Most notably, banks can now provide custody and banking services for crypto businesses and, in January this year, the OCC ruled that banks may participate as nodes in blockchain networks as well as use stablecoins for payment networks.
Other key improvements on the regulatory front since the ‘wild west’ days of 2017 include the fact that most leading digital asset exchanges are now engaging with regulatory bodies. Ralph also highlighted that an entire industry has developed around tools designed to monitor crypto flows for illicit activity, and these have been broadly adopted by leading crypto companies.
Ralph and Michael acknowledged that the Bitcoin blockchain is notoriously energy-intensive, owing to the processing of blocks requiring an enormous amount of computing power. However, it is this immense energy consumption which makes the blockchain so secure; it would be financially unviable for someone to possess enough power to successfully attack the network.
The speakers agreed that where the industry should spearhead its efforts is not in reducing the amount of computing power required to run the blockchain, but on the development of sustainable clean energy sources. A recent study by the University of Cambridge found that 76% of cryptocurrency miners use electricity from renewable energy sources as part of their energy mix. This is an improvement from 2018, where approximately 60% of the miners used renewable energy sources as part of their energy mix.
Ralph clarified that Bitcoin itself has never been compromised. Though there have been frequent Bitcoin-related compromises in the past, this has been the result of improper security or negligence on the part of the person or service holding the Bitcoin.
Ralph also commented on the recent spike in innovation, especially relating to private key management and mitigating counterparty risk. New technology from crypto custodians, such as Copper’s ClearLoop which offers the ability to instantly settle cryptoassets off-exchange, make it safer and faster than ever to hold and trade cryptoassets, and is helping usher in a new wave of institutional investors.
Michael agreed that each new innovation and product offering marks another step on the path towards the crypto sector becoming more transparent, vibrant and reflective of traditional markets.
Ralph and Michael both expect to see a wider range of institutional investor groups venturing into cryptoassets now that the primary infrastructure challenges and cybersecurity challenges have been resolved. The speakers concluded that in this environment of unlimited money printing, the scarcest assets will perform the best as investors look to avoid the potential effects of inflation.
Since there will only be 21 million Bitcoin to ever exist, Bitcoin looks set to continue attracting interest from corporates and institutional investors as the search for alternative stores of value intensifies in coming years.
Huge thanks to everyone who tuned into the ACT webinar with Ralph Payne, Michael Aandahl and Naresh Aggarwal. If you missed it, register here to watch the recording.
We are now organising a special Q&A session to answer the dozens of questions that were not addressed due to time constraints. Watch this space!
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