Bitwise Chief Investment Officer: Hundreds of companies will buy Bitcoin in the next year and a half

Original title: Companies Buying Bitcoin: An Overlooked Megatrend

Original author: Matt Hougan, Chief Investment Officer of Bitwise

Original compilation: Luffy, Foresight News

One of the things I want to do in this week's memo is highlight those areas where I think the conventional wisdom is wrong, one of which is:

MicroStrategy’s purchase of Bitcoin has not received enough attention.

I know what you’re thinking: “Not enough attention? This company and its founder, Michael Saylor, are a regular fixture in the media.”

That's right. But most investors I talked to seemed to view the company as an exception, a unique entity with a unique founder doing a unique thing.

This is wrong.

Over the past few months, I’ve delved into the phenomenon of businesses buying and holding Bitcoin as a reserve asset, and I’ve concluded that this trend is much broader than most people realize. In fact, I think this is a real big trend.

My prediction is this: Over the next 12-18 months, hundreds of businesses will start buying Bitcoin, and their purchases will significantly drive up the entire Bitcoin market.

Here are three reasons why this trend is more important than most people think.

Reason 1: The impact of MicroStrategy alone is beyond imagination

MicroStrategy is not a particularly large company. It currently ranks 220th globally by market capitalization, slightly larger than Mexican-style restaurant company Chipotle and slightly smaller than paint company Sherwin-Williams.

Last year, MicroStrategy purchased approximately 257,000 Bitcoins. Is that too much? Or less?

To put this number into perspective, it is more than all Bitcoins mined in 2024 (218,829 Bitcoins).

I'll say it again: A company the size of Chipotle will buy more Bitcoin in 2024 than the new supply of Bitcoin will be added that year.

And it hasn't stopped yet. MicroStrategy recently announced plans to raise more than $42 billion to buy more Bitcoin. At current prices, this is equivalent to approximately 2.6 years of new supply.

So ask yourself: What would happen if the really big companies started copying microstrategies? Meta, the metaverse platform company that is currently considering shareholder recommendations to include Bitcoin on its balance sheet, is 20 times the size of MicroStrategy.

Reason 2: This trend extends beyond MicroStrategy

MicroStrategy gets a lot of attention, but it's far from unique. Today, 70 public companies hold Bitcoin on their balance sheets, as do many private companies (including Bitwise, by the way).

The list of listed companies includes well-known cryptocurrency companies like Coinbase and Marathon Digital, as well as non-cryptocurrency companies like Block, Tesla, Semlar Scientific and Mercado Libre. These companies (excluding MicroStrategy) hold a total of 141,302 Bitcoins.

Private companies are not required to report their Bitcoin holdings, but according to the BitcoinTreasuries.com website, companies that voluntarily disclose (such as SpaceX, Block.one, etc.) hold at least 368,043 Bitcoins.

This means that even today, MicroStrategy's share of corporate Bitcoin holdings is less than 50%. I expect it will ultimately be a smaller share.

Reason 3: The number of businesses buying Bitcoin is about to surge

The reason I'm writing this memo today is that I believe the number of businesses holding Bitcoin on their balance sheets will explode.

Why? Until early this year, two factors prevented companies from joining this trend.

The first factor is reputational risk. Last year, the CEO of a large public company faced significant obstacles in using Bitcoin as a reserve asset. The company faces negative media coverage, shareholder lawsuits, regulatory attention and many other risks, and the board of directors simply doesn't buy it. The same constraints that have prevented institutional investors from allocating Bitcoin for years are also plaguing businesses.

But over the past few months, reputational risk has been significantly reduced. After the election, holding Bitcoin became more commonplace and popular as Washington began to embrace cryptocurrencies at the highest levels. This alone should double the number of businesses buying Bitcoin.

But there is a second and larger factor at play.

Starting last December, the U.S. Financial Accounting Standards Board (FASB), which regulates how public companies report their financials, implemented a new rule called ASU 2023-08 that changes Bitcoin’s reporting under Generally Accepted Accounting Principles (GAAP) accounting method.

Before the beginning of this year, Bitcoin was considered an "intangible asset" under GAAP and was subject to "impairment testing." This means that companies that buy Bitcoin must record its value on their books at the purchase price at the time of purchase, and must write down the value if the price falls. But if the price rises, the value is not allowed to be readjusted.

I know this sounds crazy, but it's true. However, under ASU 2023-08, the situation has changed. Now, if the price of Bitcoin increases, companies can mark to market and record profits.

If 70 companies were willing to put Bitcoin on their balance sheets even though its value would only fall from an accounting perspective, imagine how many companies would be willing to do that now. 200 homes? 500? Or 1,000?

Conclusion: Why businesses buy Bitcoin

Many people are skeptical of this trend as they grapple with the question of why businesses are buying Bitcoin.

We all know why MicroStrategy does this: it's the company's primary mission. But why would a booming medical device company like Semlar Scientific get involved?

I’ve asked myself this question many times over the past few months. But one day it dawned on me: businesses buy Bitcoin for exactly the same reasons individual investors do.

Some companies are greedy and hope that adding Bitcoin to their balance sheets will drive up their stock prices. Some companies are worried about a falling dollar and want to protect cash from long-term losses. Others want to show they are part of the Bitcoin camp to attract customers. Some companies may just go with their gut.

There are many reasons, but it doesn't matter. As an investor, you don’t have to understand the reasons why every company is buying Bitcoin the same way you understand the reasons why every institution, financial advisor, and retail investor is buying Bitcoin. You just have to look at the numbers and ask yourself two questions: Where does this demand from businesses look like going? What does this mean for the market?