Pat Hourigan of Frictionless Markets says all companies should have a bitcoin reserve strategy if they want to preserve long-term wealth. From Moneyweb.
You can also listen to this podcast on iono.fm here.
It started slowly, but it’s beginning to accelerate. More than 200 public companies now stack bitcoin on their balance sheets, with 26 new ones in June alone this year. In South Africa, JSE-listed Altvest is the first, though there are a number of lesser-known companies that have adopted bitcoin on their balance sheets in the past year.
There are some arguing that a bitcoin treasury strategy is a must-have, but most companies are nowhere near jumping on board just yet.
In this podcast, Pat Hourigan, CEO of Frictionless Markets, explains why stacking bitcoin on your balance sheet is no longer a radical idea. For the more conservative, there are options now available to invest in US Treasuries where the yield – rather than the capital – is paid out in bitcoin.
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“It [bitcoin] is the most dominant asset in the entire crypto universe. It attracts the greatest level of liquidity, and it has the longest support base. But of course, that is in the crypto universe,” says Hourigan.
“When you look at all the other types of investments that a CFO can make off of a corporate balance sheet, you have a broad variety. You’ve commodities like gold – we’ve seen a lot of action and investment in gold over the last number of months. You also have US equities, bonds, real estate and other hard assets.
“So why invest in bitcoin? You ask for a five-minute pitch, I can probably give it to you in 30 seconds,” says Hourigan
“It’s relatively simple. When you hold cash on your balance sheet, it tends to lose value. That’s by design. We print more and more cash. And if you look at the United States, it’s now heading for $38 trillion worth of sovereign debt.
“The increase of cash is going to accelerate over the next number of years – as [economies] roll off of lower interest rates during Covid into higher interest rate environments that they have today, you could see another six, seven trillion dollars being added to the US national debt.
“So why hold bitcoin on your balance sheet? Well, simply because it has the greatest staying power for wealth preservation from a corporate treasury perspective.”
Over the last three to five years, bitcoin has outperformed every single index, every single commodity, and all the top companies, including Nvidia and the leading AI companies, says Hourigan.
The key difference between bitcoin and other assets is its self-sovereignty, meaning you can take custody of it yourself rather than rely on a third party.
Hourigan compares this with a company choosing to invest in an office block yielding perhaps 4% a year. The attractiveness of that cash yield diminishes once you factor in the costs of tenanting and maintaining that building, quite apart from the taxes payable.
Even gold as a store of value comes with the costs of custody and insurance. Frictionless is current launching a bitcoin treasury reserve company that it plans to list on the Nairobi Stock Exchange.
Why Kenya?
The country is home to mobile money projects such as M-Pesa, has a stable government and strong digital asset legislation, and is attracting huge interest from financial operators around the world.
Plus, public equities are tax exempt. M-Pesa recently partnered with the Ziidi Money Market Fund (MMF) in Kenya and the M-Wekeza platform in Tanzania, which allow users to invest their M-Pesa funds into products such as government bonds and the stock market.
The world of digital assets is exploding across Africa.
Read: SA banks step up Africa drive amid fintech rivalry
There are many ways to access bitcoin: via exchanges, over-the-counter desks, through bitcoin exchange-traded funds (ETFs) or through an investment in bitcoin treasury asset companies such as Strategy.
There are a growing number of the latter, not all successful, aiming to increase the amount of bitcoin per share. Many of these trade at a substantial premium to mNAV (market net asset value) – such as Strategy, currently trading at about 1.5 times mNAV. Another bitcoin treasury company is Metaplanet Inc which has seen its stock price increase 25 times in the last two years.
There’s a right way and a wrong way
There are right ways and wrong ways of adopting a bitcoin reserve strategy, adds Hourigan.
“The methodology of doing that is either through generating profits from an operating company or using the financial markets and the capital markets with variable types of financial instruments to add more bitcoin per share. Some of that might be debt, some might be preferred equity.
“But fundamentally, a bitcoin treasury company is a publicly traded company that has a bitcoin denominated balance sheet and has a specific ethos on adding bitcoin.”
Those companies that have failed in pursuing bitcoin reserve strategies tended to see it as a fad, never had a plan, and got shaken out in the inevitable down cycles.
Why does it suit some companies and not others?
“Well, every company should have a bitcoin strategy globally,” says Hourigan.
“Every single one. But if you intend on becoming a public bitcoin treasury company, you have to have a long-term plan and you have to be able to identify the various market cycles and have the capital instruments available to you, whether it’s debt convertibles, preference shares [or] equity aftermarkets.
“You have to have all of those financial tools available in your arsenal so that you can continue to support your share price and continue to support your mNAV.
“I do think maybe one final thing on this, if anyone’s out there listening and is an aficionado of bitcoin treasury companies, I think now we’re seeing once the market has been rinsed, I think you’re going to see a lot of underpriced bitcoin treasury companies.”
