Fix your Company's Balance Sheet with Bitcoin

Attention CFO’s and Finance Directors

Are you responsible for the financial performance of a small to medium sized business? In addition to your usual focus on revenues and bottom line, do you hold any appreciating assets on your company’s balance sheet, such as bonds, securities, gold/silver, or real estate? How about bitcoin _{[Investing: Bitcoin Chart]}?

Consider for a moment the following seemingly radical but proven strategy: begin accumulating bitcoin to (i) supercharge your company’s balance sheet through long term asset appreciation, (ii) book the long term appreciation as earnings on your Profit & Loss Statements under new FASB rules for GAAP, and (iii) further leverage this appreciating asset by using it as lending collateral for traditional currency credit lines. 

Might implementing this strategy cost you your reputation and job? Not so for the numerous CFO’s of private and public companies alike who have implemented this strategy to-date, _{listed on the website Bitcoin Treasuries.} 

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Meaningfully Supercharge Your Balance Sheet

Superior Long Term ROI

Since its introduction in 2009, many have been predicting bitcoin’s downfall on a regular basis, and yet in spite of its short term volatility it has developed and thrived, generating returns far beyond that of any other asset class. The key is the time horizon. A sufficient holding period has historically guaranteed both positive and often outsized returns. This time horizon is generally a minimum of about two to three years. _{View a visualization of Bitcoin Returns vs. Major Assets from 2013 to 2023.} 

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Mainstream Adoption

Bitcoin is officially mainstream. As of the date of this article, _{there are eleven Bitcoin ETF’s to choose from} on the domestic markets; traditional wealth advisers seem to be converging on recommending a client portfolio allocation of 2 to 5%; and pioneers such as Michael Saylor of MicroStrategy _{[Ticker: MSTR]} going radically beyond such allocations, generating literally billions of dollars in shareholder value from 2021 to present.

In fact, as early back as 2021 traditional advisors have been favorably analyzing the effects of holding BTC on your balance sheet, _{as discussed in this Deloitte “CFO Highlights” article} [note this article pre-dates the new FASB rules described below]. You can acquire bitcoin either via securitized instruments such as the ETF’s, or much more preferably you can directly own and self-custody your company’s bitcoin. We touch upon the rationale and benefits of this below. 

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Liquid Asset

Bitcoin is a highly liquid asset. There are countless online currency exchanges including LUXOLO [_{Website: https://luxolo.io}] where professional bitcoin users, both individuals and corporate, can instantly exchange bitcoin into any major traditional currency, including USD. Sale proceeds can then be withdrawn via wire transfer to your traditional bank account, typically the same day. This attractive liquidity feature is unique among traditional intangible assets - such as licenses, intellectual property and goodwill - which are rather illiquid. This liquidity opens up the opportunity for CFO’s and Finance Directors to also consider leveraging bitcoin as part of their cash management strategy, provided a sufficient time horizon is utilized.

New Accounting Standard for Bitcoin

New FASB Standard on Crypto Assets

‍Changes in the FASB and GAAP accounting standards published in December 2023 render it more attractive to hold bitcoin in your corporate treasury. Specifically, in _{FASB 2023-08 - Intangibles, Goodwill and Other Crypto Assets,} both losses and now gains can both be booked for crypto assets. Previously, bitcoin had long been treated as an “indefinite-lived intangible asset”, allowing it only to be valued at cost minus impairments without consideration of subsequent value increases. This recent change now allows for valuation at fair value, with the directive to report crypto gains/losses on your income statement at the end of each reporting period.

Further details regarding the benefits of this new bitcoin accounting standard are discussed in _{this recent article from Fractional CFO Atharva Samant.} 

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The Benefit of Self-Custody

Another unique benefit of the cryptocurrency asset class is, through the use of modern non-custodial multi-signature wallets, the option of self custody of your assets. This means you select and utilize a cryptocurrency software or hardware wallet that is entirely and solely under your control. There are many available wallets, but chief among all features it’s highly advisable to use a multi-signature wallet that requires multiple individuals within your organization to “sign” a transaction before any bitcoin can be moved out. Deposits do not require permission. 

Self custody with multi-signature allows you to safely eliminate the third party performance risks associated with using a custodian for your bitcoin asset, increasing the hedging effect against both economic and banking crises. For specific recommendations on implementing this wallet storage strategy, please read our follow up article, “How to Hold BTC on Your Corporate Balance Sheet” [link needed].

Bitcoin is Lending Collateral

The Basics

Beyond being a store of value with high appreciation potential, bitcoin is now considered by an emerging segment of lenders as both a valid and preferable form of lending collateral for short-to-mid term credit lines. The power of this financial strategy cannot be emphasized enough. Here you hold a highly appreciating asset on your balance sheet against which you can now also borrow traditional currency (USD). You make interest only payments to the lender, and as the underlying value of your bitcoin holdings increase, you may wish to periodically refinance your loan in order to effortlessly and continuously expand your credit lines. This is the ultimate inflation arbitrage move of this entire generation!

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For More Information

For specific recommendations on implementing this collateral borrowing strategy, please read our follow up article, “How to Hold BTC on Your Corporate Balance Sheet”

Summary

The overarching benefits of adding bitcoin to your corporate balance sheet are manifold. You will supercharge and grow your balance sheet with a highly appreciating asset; you can now book gains and losses on your periodic income statements under new FASB rules; and you can also further leverage bitcoin by using it as lending collateral for traditional currency credit lines. In closing, bitcoin - the new global super asset - provides you the opportunity to participate in both price appreciation and borrowing while hedging against inflation and monetary risks associated with traditional currency.