The idea that most corporate treasurers are queueing up to invest in Bitcoin is one of the least credible fallacies put forward by Bitcoin maximalists. There’s no denying that founder-managed companies Microstrategy, Tesla and Square have invested. And a few others may very well follow. But not the crowds. The misconception is in part based on a misunderstanding of the role of corporate treasurers.
The vast majority of companies are not sitting on large piles of cash like Apple and Google. Hence the role of a treasurer is very different from a fund manager. Treasurers are all about risk management, not risk taking. And it’s hard to classify Bitcoin as anything other than high risk. Apart from the price volatility, Bitcoin’s sky high use of energy is bad for a company’s ESG profile. If a company invested in Bitcoin, investors would be concerned about a lack of focus on the core business.
Hear it from the treasurers
“A key objective of treasury is to secure the business’ cash,” said Ben Walters, Deputy Treasurer at Compass Group. “The priority is to conserve that cash and make sure that it’s there when the business needs it.” And hence Bitcoin is not an option.
Compass is a global catering business in the UK’s FTSE-100 with a market cap of £28 billion ($39 billion).
The sentiment was reinforced by Naresh Aggarwal from the UK’s Association of Corporate Treasurers (ACT). He highlighted that treasurers are trained to take care of SLY, security, liquidity and yield. So the value of the liquid assets held today should be pretty similar tomorrow to meet the ‘security’ requirement. Despite holding a small amount of Bitcoin himself, Aggarwal said the cryptocurrency couldn’t be classed as a store of value.
Additionally, listed companies are keen for their profit and loss accounts to be predictable, and Bitcoin would add undesirable volatility to results. But that’s not such a concern for private companies.
Asked about the impact on a treasurer’s career if someone put forward the idea of investing in Bitcoin, Walters said that it’s such an “outlandish suggestion” that it would not be treated seriously.
According to Aggarwal who oversees ACT policy and technology, UK treasurers have a more conservative approach. ACT has close ties with the U.S. treasury association NACT, and he only sees cryptocurrency curiosity in the United States. He hasn’t heard of anyone with an appetite for Bitcoin, although someone might choose not to disclose it. Mainstream technology companies are unlikely to view Bitcoin differently. However, Scandinavians tend to see cryptocurrency as more of an opportunity.
Aggarwal suggested that cryptocurrency is an area where treasurers might provide guidance to the board.
Is Bitcoin an answer to negative interest rates?
What about negative interest rates, paying banks to hold your cash? “You don’t tend to get hauled over the coals on your interest income, anything like the extent of the problems you’d create if you did not have the cash when the business needed it,” said Walters, elaborating that the business would just have to live with negative rates.
Aggarwal noted that with low rates, some treasurers have explored different maturity money market funds. If a listed company wanted to get adventurous, many more familiar alternative assets would be on the radar ahead of Bitcoin. But like Walters, he thinks it’s more likely company boards will get used to the idea of negative interest rates.
What’s the company’s purpose?
Both men asked about the purpose of the company. Investors are not buying into Compass “to expose themselves to Bitcoin. I cannot see realistically any circumstances in which a business like Compass would invest in Bitcoin,” said Walters. “It does go back to what YOUR stakeholders are buying into.”
The point being investors can diversify their portfolio without your company’s help.
On that point, Tesla is a good example. Arguably Tesla’s current market capitalization is as much about Elon Musk’s persona as it is about the cars. While highly innovative, the company faces increasing competition. Could it be that Bitcoin holders are a pretty good target market, both for the cars and as potential Tesla investors? But even after Bitcoin and stock market peaks yesterday, the Tesla price is 19% down from the date it invested in Bitcoin in February.
Eventually, Tesla will likely sell the Bitcoin to use the money for its original purpose, making cars. What happens to the Bitcoin price when news leaks that Tesla is liquidating its position?
Microstrategy is another example. The software company doubled down on its Bitcoin bet and borrowed $1.7 billion to invest in Bitcoin. Accounting for that debt, roughly half of Microstrategy’s $7.7 billion market capitalization can be attributed to Bitcoin. Since the company invested in the cryptocurrency, 38% of its stock has been acquired by Blackrock, Morgan Stanley, and Vanguard. JP Morgan included the stock as 20% of its Cryptocurrency Exposure Basket. And perhaps that’s the point.
However, the company’s CTO and other senior executives have been selling stock since November. And what happens when there’s a U.S. Bitcoin ETF and these investors can shift to more direct Bitcoin exposure?
In conclusion, while there’s significant institutional interest in Bitcoin as an asset class, the focus is as an alternate investment. So Bitcoin is a capital market play. The role of a treasurer is very different from a fund manager. It’s about managing cash and risk, and for now, Bitcoin doesn’t fit the bill.
