With the mainstream coverage of bitcoin increasing radically in 2021, more people are realizing that bitcoin is a savings technology unlike anything seen in their lifetime. As such, it opens up new avenues of thinking that allow you and your business to allocate capital differently than anyone previously thought possible. In an interview with Michael Saylor, Ross Stevens, CEO of New York Digital Investment Group said that the most important job of any CEO in this inflationary environment is capital allocation.
Bitcoin Strategy And Your Business
Why risk your hard-earned capital on stocks or put them in bonds with a negative (real or nominal) yield when you have bitcoin as an option? For those who have not yet done their homework, bitcoin appears to be an extremely risky asset – this article is not for them. This is for the person or leader of an organization who has done enough homework on bitcoin that they see much greater risk in having zero allocation to bitcoin.
As Lyn Alden said on the November 23, 2021 “What Bitcoin Did” podcast:
“People have different numbers for how much bitcoin is right for them, but zero is not the right number for most people anymore. For people with high conviction, they don’t want to own anything but bitcoin. And they’re willing to accept crazy drawdowns and crazy doubling and tripling in price. Whereas others with less conviction and volatility tolerance, it’s about putting bitcoin into their assets at non zero.”
Businesses of all sizes need to ask themselves the question:
“What is our bitcoin strategy?”
There are a few main areas where businesses can benefit from Bitcoin:
- Bitcoin on the balance sheet – which allows the business to have an appreciating asset of bitcoin rather than a depreciating asset of cash on hand.
- Implementing a payment and marketing strategy with rewards cards that reward in sats.
- Accepting bitcoin as payment – which allows businesses to cut out or reduce high merchant account monthly and transactional fees.
- Giving employees the option of being paid in bitcoin.
These are some implementation options that require a Bitcoin strategy to make bitcoin work for your business.
This article will focus on some aspects of a bitcoin strategy for the first item on the list: capital allocation towards bitcoin.
Bitcoin Strategy For Business
If you are the owner or CEO or even part of a partnership of a company, what is your bitcoin strategy and what are the pieces of a bitcoin strategy for your balance sheet?
Let’s start with a few pieces of strategy:
- Educating other owners, stakeholders, and sometimes employees
- Doing the math on capital allocation to bitcoin and determining your percentage allocation to bitcoin
- Deciding whether to use cash or loans for bitcoin allocation
- Determining a strategy for buying bitcoin
When putting together your strategy, you can start with these areas and put some plans in place.
Bitcoin Strategy: Getting And Keeping Bitcoin Buy-In
Education about Bitcoin is key and is not just a one-time effort.
- What is your strategy for educating about Bitcoin?
- What is your strategy for managing expectations and volatility (if there is a drop after purchase)?
- What if one or many stakeholders are not aligned with a Bitcoin strategy for the balance sheet?
- How do you and any stakeholders decide whether to sell or hold, or buy more bitcoin?
Bitcoin Strategy: Do The Math When Thinking About Cash
How do you and the stakeholders do the math to help determine your capital allocation to bitcoin? How much purchasing power are you losing or gaining each month?
Assume that inflation is somewhere between 6 and 16% at the time of this article.
If your cash is earning 0% interest and essentially losing 6 to 16% value due to inflation, should you be thinking about the math as follows:
- A collateralized loan you are paying 6 to 16% interest on (but can’t write the interest off)
- A depreciating asset where you cannot write the depreciation off or sell it above that depreciated value
- A credit card charging 6 to 16% interest.
- Technically cash on your balance sheet is a liability not an asset
When thinking about strategy and allocation, run the numbers with your cash and actual and presumed inflation numbers.
Next, run the numbers next to bitcoin appreciation over the last ten years.
These numbers can help you look at the reality of the true purchasing power of your cash on hand, and the loss that is occurring next to the possible appreciation of Bitcoin.
Understanding these numbers can help you realize the risk you are taking by leaving your money in cash.
Bitcoin Strategy: Risk And Allocation
After you’ve looked at the numbers, you need to decide on a percentage allocation to bitcoin. One factor here is risk.
- What is your usual risk appetite for other assets?
- What is the risk of even higher inflation and more loss on your cash assets?
- What is your time horizon?
Bitcoin Strategy: Cash Need And Allocation
Bitcoin in the short term can be volatile, and so an allocation should take future cash needs into consideration.
- How much cash do you need to be liquid?
- When do you foresee needing to sell the bitcoin for cash?
- What about unexpected expenses? Are there other means of paying?
Bitcoin Strategy: When To Buy
When you are ready to buy, part of the strategy is the timing of when you buy:
- Do you dollar-cost average?
- Do you buy your prescribed allocation immediately?
- Or do you do something in between over a prescribed business time period?
These questions also bleed back into your risk tolerance.
Business And Bitcoin Strategy: A Note About Taxes
One thing to keep in mind here is that engaging in all this Bitcoin activity has the potential to generate some tax liability. Of course, you’ll need to account for that, and a good, bitcoin-knowledgeable CPA will be an important part of your planning. But consider that even paying taxes on the USD gain of bitcoin sales (if you make any) will not significantly impair the benefit received by preventing the loss of purchasing power due to inflation.
Business And Bitcoin Strategy: Make A Plan
The questions and numbers in this article are part of a bitcoin strategy for your business. Just like a business plan, it’s important to have a bitcoin strategy plan.
In future Bitcoin and Business articles, we’ll talk about options for your business to buy Bitcoin for its balance sheet, as well as how businesses are getting creative with perks by allowing payments that generate bitcoin rewards.
It all starts with a strategy and a plan.
This is a guest post by Mark Maraia, Heidi Porter and Colin Crossman. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.