As bitcoin and other crypto-currencies begin to come of age, corporate treasuries around the world are increasingly turning to them as a tool that can be deployed to preserve the value of reserves, enhance liquidity and shore up balance sheets.
These are the findings of Michael Moro, chief executive of US-headquartered crypto-asset specialist Genesis that transacts with around 20 digital instruments. The company assets exceeded $9bn at the end of Q1 2021 in the wake of fast-rising interest from a wide variety of counterparties including corporates.
Genesis normally works with hedge funds, high net worth individuals and family offices, but with companies such as Tesla taking the lead, corporate treasurers have got involved throughout 2020 as crypto-currencies have matured as an asset class, he explained.
In the seven weeks leading up to the interview, a quarter of all Genesis’ trades in bitcoin had been with corporate treasuries,” said Moro.
Corporate treasurers are responding to a radically different post-pandemic world, citing concerns about the macro-environment created by the pandemic and the global round of quantitative easing. “Companies are asking ‘how do I maintain the store of value of my assets,” he said. “Treasurers see the money supply expanding by trillions of dollars [and see] inflation coming. How do I potentially guard against that? It is fascinating the number of companies that are now doing this, both within the US and internationally.”
Some of Genesis’ corporate clients in Latin America and Asia are struggling to preserve the value of their assets with inflation running at 20-40 percent. “They are guaranteed to lose value every single year,” he said, citing the inadequacy of corporate bonds and local fiat currencies as hedges. Even in the US there was the possibility of inflation creeping up to five per cent.
Considerations such as these were part of the growing rationale of using bitcoin as an alternative asset. Genesis has seen big changes since it set up an over-the-counter trading desk in 2015 as a SEC-registered broker dealer with the aim of bringing a highly regulated counterparty to the table so that institutions could do block trading of $1m or more. In the meantime derivatives trading exchange CME has launched a bitcoin futures product on venues regulated by the Commodities Futures Trading Commission and established market participants such as Fidelity Investments have got involved.
“The market infrastructure has started to evolve,” Moro explained. “Now there’s lending, there’s borrowing, there’s institutional investors, there’s custody. None of these things existed a few years ago.”
However he stressed that bitcoin and crypto-currencies in general remain volatile instruments. “They will be for some time,” he said. “It is the nature of the asset class. You will see years when the bitcoin price will triple or quadruple and then you will see 70-80 percent drawdown and bear markets.”
Volatility will reduce as more institutions start dealing in them: “the more institutions that get involved, the more mature the asset class becomes and it becomes that much more investible.”
Asked how bitcoin has worked as a tool for treasurers so far, the Genesis CEO explained that, although on the evidence of small database, it has performed well enough to be considered as “an attractive reason for allocating some percentage of your corporate treasury certainly into bitcoin”. Also, if companies need liquidity, they can swap their bitcoin with Genesis in exchange for dollars.
One of the great advantages of working with regulated broker dealers such as Genesis, a digital currency specialist, is that they can help treasurers understand all the essential steps including compliance. And because Genesis uses tools such as blockchain surveillance, it is able to track the origin of the coin and meet stringent AML and KYC regulations. “It is important that companies and institutions can assure shareholders that the bitcoins are clean,” he said.