Why companies need to integrate Bitcoin into their strategies for long-term success
As an incorruptible store of value and tamper-proof payment network, Bitcoin enables all businesses to prepare for the future.
Introduction
As Murray Rothbard, an American representative of the Austrian School of Economics, aptly described, the task of an entrepreneur is to predict the future state of the market. In our current economic system, which is based on fiat money, it is almost impossible for entrepreneurs to plan because central bank decisions, for example on interest rates, are unpredictable. This has created a reality of uncertainty where entrepreneurs and individuals cannot plan adequately and are subject to arbitrary decisions by state actors. Especially since the beginning of the corona pandemic, laws and interest rates have been changed arbitrarily and continuously incomprehensibly. We are faced with great economic uncertainty worldwide.
Bitcoin
Bitcoin offers a solution to this problem. As Preston Pysh magnificently described in a tweet a few weeks ago, Bitcoin’s decentralised nature ensures a robust and tamper-resistant foundation for the global economy. Unlike traditional currencies controlled by central banks and governments, Bitcoin operates on a decentralised network that is immune to political interference and manipulation. Bitcoin exists outside of the fiat based and central bank controlled financial system. No more waiting for what Jerome Powell, the Chair of the Federal Reserve of the United States, will announce at the next press conference. I can hardly believe that we live in a system where we are dependent on central institutions and individuals in the state apparatus. I also find it difficult to understand why someone like Jerome Powell or Christine Lagarde, Chair of the European Central Bank, would think that the exercise of such power would bring any benefit to society. It reminds me of the arrogance of the French sun kings, who supposedly represented God on earth to ensure law and order. Anyway, I don’t want to complain too much. Rather, I would like to explain to what extent Bitcoin offers a solution to the problem.
As Saifadean Ammous describes in his book The Fiat Standard, Ludwig von Mises, one of the most influential economists of the Austrian school of economics, argues that uncertainty about the future is the central reason (key demand) for holding money. Market participants want to be sure that the money they hold will retain its value over time. The capped supply of 21 million bitcoin addresses the issue of inflation that has plagued traditional currencies. With a finite supply, Bitcoin inherently resists inflationary pressures that erode the value of other currencies (Preston Pysh, 2022). This means that individuals and institutions who choose to store their wealth in Bitcoin can expect their purchasing power to be preserved over time, unlike those who rely on fiat based financial instruments like bonds that are vulnerable to more monetary units being added into the economy and into the hands of a chosen few (Preston Pysh, 2022)
The ability to store value and trade has been instrumental in human evolution, as described by Nick Szabo in his article “Shelling Out: The Origins of Money (2002)”. Our human ancestors used jewellery to store value and trade with each other tens of thousands of years ago. This has allowed us to form complex social structures and ensure each other’s survival Conversely, this means that if we don’t have a good store of value to base our trade and cooperation on, we as a human species will not thrive. This explains why, despite tremendous technological advances over the past century, humanity is facing a self-created economic crisis.
The current problems in the world economy, especially inflation, were created by central banks, their monopoly on money and the destruction of the function of money as a store of value through the constant increase in the money supply.
Owning bitcoin is an excellent hedge against the troubles in the existing financial system as the Bitcoin Network operates outside of it. The supply of bitcoin cannot be increased at will. Additionally, due to Bitcoin’s well-known issuance schedule, it’s much easier to plan for the long-term.
Volatility
Bitcoin is highly volatile, it is important to use only a portion of a company’s treasury or cash flow to buy bitcoin (2–5% seems to be typical). This is not money that is needed to make payroll or pay vendors. A bitcoin stash is a long-term treasury management strategy outside of the traditional banking system’s current uncertainty.
Holding period
It is also ideal to have a holding horizon of 5–10 years (ideally forever) as bitcoin appreciates in value over time (forever). The fragility of the global financial system is a result of constant state intervention. The system cannot become resistant. It’s like sending a boxer into a fight without proper training. Instead of letting the market learn, the government tries to stimulate the economy when markets experience natural downward pressure. They do this by increasing the money supply to stimulate consumption and artificially keep a failed system alive. The problem is that an increase in the money supply leads to inflation; the loss of purchasing power of individual monetary units and the associated increase in the price of products (rising prices). This can have serious consequences. On the one hand it devalues the savings of all savers and on the other hand it attempts growth at the expense of all reasonable market participants who plan for the long term and save. The result is a difficult and unhealthy economic environment. Moreover, in a world where money depreciates, societies will fracture.
Good vs Bad money
When money loses value, it negatively affects a society. This process can be observed in countries with high inflation (Venezuela, Lebanon, Trukey). A tragic historical example is the hyperinflation in the Weimar Republic, the government of Germany from 1918 to 1933. In 1922, a loaf of bread in the Weimar Republic cost around 160 marks, by the end of 1923, it cost 200,000,000,000. Money was so worthless that it was used as toilet paper. People had to push money with wheelbarrows to be able to shop and children played with bricks of money. By November 1923, one U.S. dollar was worth 4,210,500,000,000 German marks.
As a result of the inflation, Germans went into despair. The population was frustrated, and the accompanying inequality led to a rise in populism. Adolf Hitler and his Nazi henchmen eventually took advantage of this distress and manipulated the masses. The reign of the Nazis in Germany was marked by atrocities and ended in one of the most brutal wars of annihilation in human history. This makes it clear that the devaluation of money leads to the devaluation of society and can ultimately lead to the devaluation of everything — including human lives as the crimes in Germany, the horrors of World War II and the Holocaust have shown.
I don’t want to sound overly pessimistic, but we are in a pretty precarious situation globally. While we’re not likely to slide into such chaos as the world did in 1920–1945, the events of the past years (inflation, states of emergency, war) underscore the importance of a Bitcoin strategy.
Bitcoin strategy
Bitcoin is a solution to the problems of the fiat system because it is “sound money”*. It leads to the development of strong business practices, appropriate capital allocation as bitcoin acts as a benchmark, and robust financial services models that extend to loans, investments, IRAs, and equities (as more public companies will be exposed to bitcoin by mining it, providing services or holding it on the balance sheet).
* Sound money is money that is not prone to sudden appreciation or depreciation in purchasing power over the long term, aided by self-correcting mechanisms inherent in a free-market system.
Bitcoin price action since the debacle with Silvergate Capital, Silicon Valley and Signature Banks all on the verge of collapse (03/10/2023) shows that market participants are beginning to understand how to truly store their value. While banks are crashing, bitcoin grew in strength. Bitcoin is a hedge against value decay in the fiat system, a great way to save, build capital and strengthen a company.
Bitcoin is the most stable asset to build a business on. You can’t plan with fiat. You can with Bitcoin. If you own one bitcoin, you own 1/21,000,000 of the energy stored in the strongest monetary network ever built. Independent of centralised control. The supply is fixed, the supply schedule known, predictable and, above all, verifiable. Bitcoin is open source. Anyone can read the code. This type of transparency is unknown in the existing financial system, which is known for its opacity. With Bitcoin, you can become self-sovereign and free yourself from a failing system that is trying to stay alive at the expense of everyone else.
When bitcoin is stored in cold storage, those bitcoin are the holders alone and are not at risk of default by third parties, including banks or exchanges, or rising monetary inflation and arbitrarily central bank decisions. As an incorruptible store of value and tamper-proof payment network, Bitcoin enables all businesses to prepare for the future. There are a variety of ways to use Bitcoin in business other than storing value. You can process payments over the Bitcoin network. Build applications based on Bitcoin. In particular, but not exclusively, financial services. You can allow your customers to pay in bitcoin. Energy companies can monetize excess energy generated by the production of wind, for example, via Bitcoin mining. This will allow renewable energy in particular to become profitable at an early stage. Also, energy-intensive industries can generate the heat they need themselves by mining bitcoin and making money at the same time. Companies that hold bitcoin or offer Bitcoin related services participate in the exponential growth that Bitcoin, as a deflationary system, creates. Any business can use Bitcoin because it is money. By definition, a business enterprise seeks to make money (accumulate capital). Then why wouldn’t you want to earn the best that will allow you to increase your purchasing power fastest?
Real Estate
Real estate investors for example can use bitcoin to build maintenance reserves, which are important in order to maintain the value of a property. Given the high levels of monetary inflation in fiat currencies, simply holding rental income in a bank account is not enough. Inflation will melt the value of your cash flow. In addition, regulation and ESG requirements will increasingly force property owners to “modernise” in the future. Which is likely to increase property maintenance costs over time. Bitcoin gives you increased purchasing power in the long term.
Bitcoin is the perfect money to build maintenance reserves as it is disinflationary (meaning there will be less supply over time). When demand increases and supply remains nearly constant, the price increases. Demand for bitcoin will increase over time due to its exceptionally good monetary properties. Bitcoin offers you the opportunity to position yourself for the future. Whatever your business is.
Conclusion
As the fiat-based monetary and financial system slowly but steadily depreciates and potentially collapses, not having exposure to Bitcoin is now a greater risk than having calculated exposure and risking losing something should Bitcoin fail. That risk is almost 0 as the Bitcoin network is the strongest digital infrastructure ever built. Before Bitcoin crashes, the digital infrastructure of the existing financial system would crash. When you hold fiat money, the value of your money falls along with monetary inflation. If you own bitcoin, you are safe from a fiat system crash and defy any inflationary pressures. If you don’t, you’ve already lost.
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