What Does It Mean To Run A Company On A Bitcoin Standard? 1x275i

To Investors, I’m always intrigued by innovative ways of doing traditional things. I’ve increasingly been intrigued by how companies are looking at bitcoin and deciding on how to participate in the bitcoin market. Today I want to talk about what it means to run a company on a Bitcoin Standard. So, for starters, if a company runs on a bitcoin standard it means that the company adopts bitcoin as its unit of , store of value, and medium of exchange. Essentially, it means if you conduct your financial operations in rands for example, then you would just use bitcoin instead. Once a company has made that decision they’ve also decided to operate somewhere on what I’ve thought of as a spectrum of bitcoin adoption. On one end of the spectrum is when a company decides to sell or convert a part of their treasury assets and buy and hold bitcoin as part of their portfolio. On the far end of that spectrum is a company that makes all of its decisions within the context of Bitcoin. Let’s run through some examples… 1. Holding Bitcoin as a Reserve Asset Here, when a company decides how to hold its retained earnings the company will choose to buy bitcoin instead of buying government bonds, or investing in a money-market fund, or investing in an equity fund. The most popular example is how in 2020 MicroStrategy took the decision to convert all of its existing portfolio reserve assets into bitcoin. 2. Accepting Bitcoin For Payments In this scenario a company would allow customers to pay for goods and services using bitcoin. This would then require that the company has bitcoin transactional infrastructure embedded into the business’s financial infrastructure. 3. Paying Expenses or Salaries in Bitcoin Vendors, suppliers, or employees may be paid in Bitcoin, either partially or fully. Payments that a company receives in bitcoin may need to be converted into fiat currency (rands, dollars, etc) for operational expenses, for example if vendors don’t accept bitcoin. Otherwise, bitcoin can be held in reserve for capital appreciation. 4. ing in Bitcoin The company uses Bitcoin as its unit of for financial reporting, pricing, and budgeting. Instead of denominating revenues, expenses, or profits in fiat, they’re tracked in BTC or satoshis (Bitcoin’s smallest unit). 5. Bitcoin-First Financial Strategy The company prioritises Bitcoin in its financial decisions, such as raising capital through Bitcoin-denominated loans, issuing Bitcoin-based bonds, or even mining Bitcoin to generate revenue. In one more example, depending on how strongly you believe bitcoin will continue outperforming traditional investments, you can run your company at the very last end of the Bitcoin standard/adoption spectrum, where you draw a line to tell your employees, research & development team, and partners that “if a new idea that they have won’t perform better than bitcoin, then we’re not entertaining it”. Jack Mallers, founder of Strike, takes this extreme position. Listen to his take in this video. Putting aside the philosophical conversation about bitcoin, as a CEO/CIO/CFO you’d decide to run your company on a bitcoin standard simply because you want as much exposure as you can handle to bitcoin because bitcoin, like gold, is a robust store-of-value asset — except bitcoin outperforms gold over the longer term because bitcoin has stronger network effects compared to gold. What are other reasons that a company would want to run on a Bitcoin Standard? For businesses operating globally, traditional cross-border payments can be slow and costly, often taking days and incurring high fees. Using Bitcoin, particularly through the Lightning Network, allows companies to process transactions almost instantly with minimal costs – reportedly often less than 1% compared to over 11% for traditional methods. This can save money and improve cash flow for international operations. Another reason is that bitcoin has historically outperformed most fiat currencies, for example returning 924% over the last five years. By using Bitcoin as the unit of , a company’s financials could reflect higher value over time, especially in inflationary environments where fiat currencies lose purchasing power. I have one more reason for you, that should be very compelling; and that's wealth preservation. Bitcoin has outperformed the JSE Top 40 index, and outperformed returns from South African government bonds over the last 5 years. With a 59% CAGR over the last 5 years, bitcoin also outperformed the top performing equity funds in the same period, including the PSG SA Equity Fund; Investec Dynamic Equity; Fairtree Select Equity; Steyn Capital Equity; and the Stanlib Enhanced Multi Style Equity (SA). Now obviously there are risks to such a strategy, and it goes without saying that companies should consider the regulatory environment before making any financial decisions. The other major risk that investors often talk about is that bitcoin remains relatively volatile – but I think that conversation isn’t being addressed with the correct nuance because bitcoin works on Metcalfe’s Law, which when simplified means that the network effects of the asset are what drive the intense upswings and drawdowns as well. So in my view the digital nature of bitcoin will always mean that bitcoin is more volatile compared to traditional assets like gold, bonds, or equities; so no capital allocator should ever present the idea of waiting for bitcoin’s volatility to “go down”. That’s just my take. What are your thoughts on running a company on a Bitcoin Standard? On my journey to becoming a master capital allocator, one lesson down, a billion more to go. Hope you all have a great day -Mansa Thanks for reading Self-Taught MBA! Subscribe for free to receive new posts and my work. To hear more, visit selftaughtmba.substack.com 413n1x