Companies using cryptocurrency as a reserve asset. What if governments in developing countries mimic the same strategy?
Publicly traded companies have transformed some of their assets into Bitcoin. Can countries with critical economic situation find some answers with these decisions?
As seen on media, in the beginning of the last quarter of this particular 2020 we started to see a trend among the enterprise ecosystem. The main goal: find a “safe-heaven” for a part of their assets in the face of an uncertain future.
Payments platform Square purchased $50 million in Bitcoin, calling cryptocurrency “an instrument of economic empowerment” that “provides a way for the world to participate in a global monetary system.”
MicroStrategy adopted Bitcoin as their principal holding in their treasury reserve strategy, acquiring $425 million of total value in the cryptocurrency. Michael Saylor, founder, chairman and CEO of the company, clearly stated “since its inception over a decade ago, Bitcoin has emerged as a significant addition to the global financial system, with characteristics that are useful to both individuals and institutions.”
The sanitary crisis hitting the world forced Central Banks to put their money printers in “non-stop” mode, showing a potential widespread inflation once the global economy rebounds from the shock.
Having a deeper look in countries like Argentina, with permanent inflation, deprecated local currency, limited dollars reserves in it’s Central Bank and no clear future for the economic situation, this kind of news caught my attention and made me wonder: What would happen if the government turns some of their reserves into Bitcoin?
It’s clear that this would be a bold and totally disruptive move. But, let’s check some facts:
- Bitcoin has a fixed supply of 21.000.000, which turns it into a “inflation-preventing” asset. It is regularly cited as a hedge against inflation caused by money printing
- It is not controlled by a central entity. Bitcoin is somewhat relieved from problems that typical fiat currencies face like lower purchasing power and hyperinflation.
- It can be self-custodian. People inherently understand the value of self-custody, even in traditional assets like gold. Held this way, Bitcoin runs on an entirely separate financial system than the traditional one, making it a systemic hedge. In other words, Bitcoin is also a hedge against failure of modern financial infrastructure such as banks, clearing and settlement networks, foreign exchange markets and payment rails.
Roger Huang, a Forbes magazine contributor in matters of blockchain and cryptocurrencies, goes the extra mile and points out why it is important to have a long-term perspective and the fact that cryptocurrencies are a fundamental hedge against bad governments. Some of the points he highlights are:
- It’s not a central authority, governed by statute or accredited by loyalty or expertise that determines the current amount of bitcoin in circulation but rather individuals contracting together under a set of laws codified in code.
- Cryptocurrencies showing that distributed governance can be used to create economic value and trust, and don’t require centralized authorities or governments.
- Bitcoin’s distributed nature makes it extraordinary hard for a nation-state to enforce norms or censor transactions as seen with Wikileaks.
In addition, Santiago Siri , a recognized Argentinian entrepreneur, encouraged in a figurative way via Twitter to the national government to purchase Bitcoin equivalent to 1% of the the Central Bank reserves.
Are we going nuts?
In such uncertain times, a more global and wider point of view could be handy in governments of developing countries. In reality, political “old school habits” are a strong barrier against these type of action plans.
In the end…Who knows what will happen in the future?