These days, it seems like everybody is trying to buy Bitcoin (BTC 0.43%) -- individuals, Wall Street banks, institutional investors, and even the U.S. government. But until recently, corporations were not getting into the act. Only a relatively small number of publicly traded companies currently hold Bitcoin on their balance sheets.
But that could be changing. According to billionaire Silicon Valley venture capitalist Tim Draper, corporations need to start buying Bitcoin. If America's publicly traded corporations decide to go on a Bitcoin buying spree, that could send the world's most popular cryptocurrency soaring to new all-time highs.
The strategy to buy Bitcoin
Corporations are starting to follow the playbook created by MicroStrategy (MSTR 0.04%), the company now doing business as Strategy. That playbook primarily consists of one play: buying Bitcoin. Strategy now owns a staggering amount of Bitcoin -- 568,840 coins and counting. It seems that nearly every week, Strategy reports a major buy of more Bitcoin. Its current Bitcoin stockpile is valued at nearly $60 billion.
In 2024, a number of publicly traded companies started to dip their toes into the Bitcoin waters. In some cases, they were not even tangentially related to blockchain or crypto, so it raised a few eyebrows. But those were relatively small companies, and it was possible to ignore all the chatter about American companies buying Bitcoin.
Image source: Getty Images.
But then came December 2024 and a first-of-its-kind shareholder proposal voted on at tech titan Microsoft (MSFT +0.66%). Simply put, the proposal called on Microsoft to start adding Bitcoin to the balance sheet, all in the name of building shareholder value. Michael Saylor, the founder and executive chairman of Strategy, even gave a brief three-minute presentation to Microsoft shareholders, showing them how much money they were leaving on the table by not buying Bitcoin.
Is it "irresponsible" not to buy Bitcoin?
The Microsoft Bitcoin proposal eventually failed, but it should have been a big wake-up call for corporate America. The proposal combined a wildly bullish outlook for Bitcoin with the rather staid concept of shareholder value. The proposal essentially made the case that buying Bitcoin was the responsible thing to do. If corporations aren't buying Bitcoin, the thinking goes, they aren't maximizing the value of a business.
CRYPTO: BTC
Key Data Points
Flash forward to today, and Tim Draper is now arguing that it is "irresponsible" for corporations not to buy Bitcoin. Speaking at the Financial Times Digital Assets Summit, he outlined the case for buying Bitcoin and specifically noted that businesses without Bitcoin are not serving shareholders' interests. As he sees it, Bitcoin can help to build shareholder value. Just as corporations hold cash and cash equivalents, they should also hold Bitcoin.
This notion of irresponsibility is very important. It has led to corporations divesting from certain regions of the world or refusing to invest in certain types of businesses. It has led to corporations embracing ESG (environmental, social, and governance) initiatives and fully detailing them in their presentation materials to shareholders. What if corporations now decide to address Bitcoin in the same way?
Price impact on Bitcoin
Things get very interesting when you start to consider the potential impact on the future price of Bitcoin. Investment firm Bernstein recently ran the numbers and calculated that publicly traded corporations could add as much as $330 billion in Bitcoin to their combined balance sheets within the next five years.
Given Bitcoin's total market cap of $2 trillion, that's a lot of buying and would almost certainly send the price of Bitcoin skyrocketing. According to Draper, Bitcoin is going to $250,000 by the end of 2025, and one catalyst will be corporations buying Bitcoin in size.
What could possibly go wrong?
The problem is that a strategy of adding Bitcoin to the balance sheet only works if the price of Bitcoin continues to go up. If the price of Bitcoin goes down, corporations will actually be reducing, not maximizing, shareholder value by buying Bitcoin. Every quarter, they will need to write down the value of their Bitcoin holdings, which will lead to losses that will come out of shareholder equity.
Unfortunately, we've seen this story before. In early 2021, Elon Musk and Tesla (TSLA +2.40%) made headlines worldwide with the decision to buy $1.5 billion in Bitcoin. It looked like a genius move, and the price of Bitcoin soared to a record high.
However, just months later, Tesla started to walk back the idea of customers paying for their cars in Bitcoin. Then, after the price of Bitcoin cratered in 2022, Tesla was no longer talking about buying Bitcoin. In fact, in July 2022, it sold 75% of its Bitcoin holdings.
The lesson was clear: Bitcoin is simply too volatile to hold a lot of it on a balance sheet. I'm not saying this scenario will happen again. But I'm also not saying it won't.
Certainly, if you're a Bitcoin investor, it's exciting that corporate America might start loading up on Bitcoin. That would almost certainly send the price of Bitcoin higher. The big question, though, is what will happen if the price of Bitcoin falters.
