Why should brands care about Bitcoin?
NFTs are great, but everyone is missing the bigger picture
NFTs have captured mainstream media’s attention and for good reason. Non-fungible tokens are critical for representing the real world in the digital world, but on the surface, digital art and collectibles were simply easier use cases to understand the implications of blockchain enabled technologies.
However, they’ve distracted market participants from the elephant in the room, bitcoin is king and should be on everyone’s radar.
The invention of bitcoin the digital asset and Bitcoin the network were profound innovations that will reorganize society across the world.
Without getting into the meta-implications of absolute scarcity and an open decentralized monetary network that can instantly transfer value anywhere on the planet, let’s focus on bitcoin the asset class and it’s benefits for early adopters, like companies.
Digital Gold — We’re Super Early
Bitcoin is the best money ever engineered and we’re very early in its adoption cycle. It’s the year 1998 when comparing the adoption of the Internet to the adoption of bitcoin.
There’s currently an estimated 200 million digital wallets globally that own more than 0 BTC. That’s approximately 2.5% of the global population, however, one individual can have multiple wallets and some wallets have been lost, therefore the actual amount of people who have any exposure to the digital asset is most likely much less than 200 million people.
Due to Bitcoin’s immutable programmatic deflationary monetary policy and its fixed number of 21 million coins, bitcoin serves as a digital store of value or gold 2.0 given the unlimited amount of demand for sound money.
Bitcoin is considered a store of value because it sits outside of our existing financial system and it’s designed to increase in price as its network expands.
As bitcoin continues its financial trajectory and steals market share from other traditional asset classes that are used as investment vehicles to store value like — gold, stocks and bonds; one can assume bitcoin’s price will continue to climb. The chart above details the drastic differences in size comparing traditional asset classes vs. bitcoin.
Gold is currently a $13.2 trillion dollar market cap asset class, it’s held by less 1% of institutional investors and it’s a nurtured version of what gold used to be for most of its history. However, it’s low hanging fruit for bitcoin as it shares very similar properties outside of its physical form. If bitcoin reaches a similar market cap, each bitcoin will be worth approximately $600k. Most likely more since a number of bitcoin have been permanently lost.
If we use the widely accepted and deadly accurate stock-to-flow model that measures bitcoin’s value using its scarcity, bitcoin could reach price levels between $500k-$1M in the next 3–4 years.
Due to the dramatic increase in price and the ability to self-custody the digital asset, another way to view bitcoin is through the lens of savings technology.
Bitcoin is Savings Technology
Every individual, company and sovereign nation needs savings. Entities traditionally use cash or cash equivalents like treasuries as their reserve assets, or their savings technology.
These have been commonly confused as good stores of value, however, these assets have been losing their store of value characteristics. Over the last two decades, we’ve had two global inflationary events that have accelerated the devaluation of fiat currency and fiat debt instruments such as US treasuries, the Great Financial Crisis and the Covid-19 pandemic.
These emergencies have consequently caused monetary and fiscal authorities to dramatically increase the money supply devaluing fiat currencies to prop up the economy and provide extraordinary funds to combat the crises.
The two charts below detail the expansion of the US M2 money supply and the increase in global sovereign debt levels as a percentage of GDP.
The increase in debt is not only disturbing on a macro level, but as we drill down to the micro level and analyze consumers and corporates, indebtedness is also at record levels.
The third chart illustrates the acceleration in corporate debt across nonfinancial companies.
As the economy and society continues to exponentially adopt digital technologies and now web3 technologies, consumer habits and revenues streams will change. Companies will need to be nimble and adapt accordingly in order to capture value from consumers, but also prove to investors that they can grow in the new digital arena. Investors will most likely shift away from the incumbent corporations holding ballooning bags of debt that won’t be able to make this pivot.
Therefore, debt service payments will be met through debt refinancing. The monetary authorities are aware of this conundrum or will be made aware when they try to increase interest rates. Given the size of the debt overhang, any move in interest rates will be met with either a market correction, which in turn will hurt these companies financing even further or cause a landslide of corporate defaults.
Therefore, interest rates will remain near zero if not negative and the devaluation of cash and cash equivalents will be the end results as fiat currencies act as the release valve.
Bitcoin — As An Investment
If existing revenue streams for levered corporations are shifting toward the digital world and currency devaluation is inevitable what’s the alternative solution for corporations?
The other option will be the appreciation of other investments. So, what are the best investment vehicles during inflationary times?
Investors must go farther out on the risk curve to find growth or they invest in hard assets that sit outside of existing inflationary system. Enter bitcoin.
Bitcoin as an emerging asset class combines hard money principles with the benefits of network effects. Its global monetary network gets less risky as it continues to grow. Bitcoin’s reflexive loop around appreciating price with less risk creates an incentive’s structure that only pulls more individuals, companies and now nation states toward its monetary network.
Bitcoin’s market cap has pierced $1 trillion, the fastest growing asset class to reach $1 trillion and the best performing asset of all time with an annualized compound growth rate of +155% per year.
The two charts above detail the financial power that bitcoin can have for its holders. The financial returns favor those who are early, but are still quite dramatic compared the performance of other traditional assets.
Bitcoin provides an elegant solution to a complex and massively destructive problem, however its volatile. It’s not rare for bitcoin to retrace 50%-80% off its highs in the short term. This can cause concerns for corporate treasures as to why it makes a good store value and introduces a what may seem like an unnecessary risk. However, it’s volatility works in both directions and over a long enough time horizon its volatility has smoothed out and proved to work in investors favor as a strong investment.
Bitcoin’s price appreciation makes a great investment over the long run and it’s performance begs the question — “Why would I sell an asset that’s increasing in value by more than 155% per year?”
The short answer is… you don’t.
Bitcoin is an accumulation game and the more you accumulate earlier than later, the more buying power you have in the future. In other words, bitcoin as savings technology acts as discounting technology against spending in the past and in the future.
Bitcoin — For Brands
Right now, every media company and brand is trying to figure out their NFT (non-fungible token) strategy.
While, NFTs are super important and should be part of business discussions moving forward, Bitcoin should take precedence.
We’ve already outlined the financial reasons why Bitcoin is important and the systematic problems it helps solve for companies, but let’s conclude with the brand power that Bitcoin brings to companies that adopt the asset.
Bitcoin doesn’t have a CEO or a CMO. It doesn’t have a marketing team or marketing budget, but somehow Bitcoin’s brand is everywhere. The Bitcoin community is global, highly emotional and interlocked.
When a company adopts bitcoin the asset, they instantly become part of the Bitcoin community as a bitcoin holder, and more importantly they gain hundreds of millions fans that also hold bitcoin.
Let’s look at MicroStrategy as example.
The chart above is highlighting MicroStrategy’s (MSTR) stock price over the last 5 years.
In August 2020, MicroStrategy announced that it was going to buy $400 million of bitcoin with their cash reserves to combat the effects of monetary inflation.
As you can see, MicroStrategy’s stock performed extremely well. The company’s market cap has risen from $1.5 billion at the end of 2019 to over $6.7 billion today.
Not only has company’s stock performed, but before bitcoin, MicroStrategy’s CEO Michael Saylor was a little known executive and now commands 2 million followers on Twitter, is on TV more often and his video’s on YouTube have garnered millions of views.
To say the least, the Bitcoin brand association is powerful and can breath life into some of the smallest and least well known companies and individual brands.
Bitcoin is many things to many folks, but its definitely not something to be overlooked.
Bitcoin is —
- Digital and finite scarcity
- Digital monetary network
- Digital energy
- Digital property rights
- An inflation hedge
- An insurance policy
- Savings technology
- Discounting technology
- Branding technology
