This year US corporations have begun stockpiling Bitcoin treasuries in earnest as the race for 21 million BTC tokens continues. This creates enormous structural support for market prices. But is it ideal?
After setting a historic record high around $109,000 on Jan. 21, Bitcoin prices retraced back to $82,000 by mid-April. After that they skyrocketed to another record around $112,000 in May.
Supporting these sea level changes in Bitcoin’s global capitalization is a spree of corporate BTC buys in Q1 and Q2 that signal a paradigm shift in the demand for these highly valued cryptographic hash tokens.
Is it all good news for Bitcoin and cryptocurrencies?
Here is why it may be good:
1. Institutional Validation
Bitcoin price news headlines and searches for cryptocurrency on Google periodically erupt along with bull runs on the currency. Still, not everyone is sure if it is a good idea to invest.
Many investing and financial authorities like NYU Econ. Professor Nouriel Roubini and EuroPac Chief Peter Schiff are skeptical or highly critical of Bitcoin.
It ROIs are in another league entirely compared to US stocks and private placement investments by accredited investors and high net worth individuals. While that attracts many investors, others don’t understand how it is possible or sustainable.
Institutional validation for Bitcoin investing signals signals to investors with a similar view of the world that BTC markets are really on to something. If corporations are hoarding Bitcoin then it’s probably real and safe.
When public companies like MicroStrategy, Tesla, or Square buy Bitcoin, it legitimizes Bitcoin as a treasury asset. Bitcoin is not just a speculative tool for them, but a long-term store of value.
2. Reduced Sell Pressure
In addition to creating a bandwagon effect and fear of missing out among new entrants to crypto markets, the treasury race is locking up supplies and reducing sell pressure.
Basic supply and demand economics dictates this creates price support for the underlying good or commodity. Bitcoin’s brutally deflationary design boosts this effect on token prices.
Corporate treasuries typically buy to hold long-term, not trade. For Bitcoin, Strategy and others have indicated they have no plans to ever sell their holdings.
3. Onboarding Traditional Finance
Corporate adoption creates incentives for developers to build bridges from Bitcoin to TradFi (traditional finance). Because Bitcoin is maintained by software on an open peer network, the field is wide open for app development.
The TradFi layer is excited by the advantages of automating financial services exemplified by Bitcoin’s success. This encourages blockchain developers to build more institutional tools (e.g., ETFs, custody, derivatives), making it easier for others to follow.
Institutional finance has shown some interest in building an Ethereum app layer that offers automated financial services backed by Bitcoin layer tokens.
While this sector is still in its early stages, if it takes off, BTC tokens may be undervalued at current record market prices near historical record highs.
4. Network Effect Growth
In general system theory, network effects describe the growth of ordered phenomena in an organized system along the lines of positive feedback loops.
Meanwhile, in industrial business theory the concept denotes the simple, but powerful tendency of a market, platform, good, or service to increase in value as more participants begin to use it.
Naturally, the more high-profile holders of Bitcoin there are, the more attention and trust Bitcoin gets.
When large, established corporations regularly traded on Wall Street enter the fray, there is more safety and value in numbers.
Bitcoin investment strategist Lyn Alden says that Bitcoin’s network effects support its long term price growth because:
- It resolves hard forks through market capitalism
- Developers build new layers like Lightning Network
- mega companies like Fidelity now serve customer demand with BTC custody services
5. Defensive Hedge Narrative
Corporation are conservative with their finances because they have to make payroll and please investors. If they’re investing in Bitcoin by the half a billion dollars’ worth at a time like GameStop did in May, then it must be a good macro hedge for more conservative investors.
Companies taking a defensive financial posture using BTC reinforces Bitcoin’s role as a hedge against fiat debasement, inflation, and systemic risk. Some leaders in corporate America are beginning to treating it like “digital gold” — a modern reserve asset.
Furthermore, Sen. Cynthia Lummis (R-WY) recently said that she has spoken with Defense Department generals who say they agree Bitcoin is critically important as a national strategic advantage for national security.
