Bitcoin (BTC -10.13%) is increasingly an asset that major businesses are looking to buy and hold. That doesn't necessarily mean that average investors should copy their move -- after all, it doesn't make sense to buy most of the other assets that companies need to operate.
Still, it's worth diving a bit deeper into this trend to see if it's worth following by buying more of the coin, or if it's a better idea to stick to your prior plans.
CRYPTO: BTC
Key Data Points
This bold prediction could portend higher prices ahead
According to Elliot Chun, a partner at Architect Partners, a cryptocurrency advisory group, by 2030, roughly 25% of the companies in the S&P 500 (^GSPC -5.97%) will hold Bitcoin as a long-term asset on their balance sheet. There are a handful of reasons he expects that to happen, starting with the idea that the coin can behave as a hedge against inflation in fiat currencies. It would also be a convenient way for corporate officers to diversify their treasuries, and thereby potentially reduce risk. And, if the coin continues to gain in value over time, it would prevent those officers from getting dinged for not giving their organization some exposure to the upside.
Today, Chun says there are just 90 publicly traded companies holding Bitcoin as a treasury asset, and those are mainly not part of the S&P 500. If a total of 125 companies (25%) in that set held the coin, it would mean a large cohort of the world's largest players would be invested in it. The way they'd become invested in it is by buying it, and they're (largely by definition) among the most moneyed businesses that exist. Therefore, if Chen's prediction plays out, and it might, investors could see the benefits of a large amount of new demand for Bitcoin over the next few years.
The question is: Does that make the coin worth buying? In a word, yes.
The adoption of Bitcoin by corporate actors and financial institutions is accelerating, and, as mentioned, they tend to have more money to invest than anyone else. That means if they actually decide to hold Bitcoin on their balance sheet, they will be buying a vast quantity as a group. When more money chases the same amount of coins available to buy, the price increases.
The piece of the puzzle that's a bit more complex is whether the new set of buyers can be expected to retain their coins for long enough to make the trend itself something that's worth investing based off of. After all, if businesses treat Bitcoin as just another form of cash, their purchases of it will quickly be matched by sales of the asset when they want to exchange it for goods or services. Major liquidations to fund big capital expenditures might even reduce its price. But that isn't very likely in this case.
Don't sleep on this trend
Under the current set of tax rules in the U.S., companies need to pay capital gains taxes. Major companies hate to pay taxes when they can avoid it. So they probably won't want to sell their coins unless it's absolutely necessary.
In fact, they're more likely to use the value locked in their Bitcoin as collateral to borrow against, rather than opting to use it directly. In other words, they are more likely to hold their Bitcoin for years and years than to be frequent buyers and sellers, so the price impact of their holding it will probably be positive rather than negative. This means that Chun's prediction would have very bullish consequences if it comes true.
There's an easy way to benefit from the potential trend of more major companies holding Bitcoin: Buy some yourself, and then hold it. Even if these companies don't start buying as much of it as the prediction calls for, even a small amount of purchasing activity over time will buoy the price. And, as it only gets harder to mine Bitcoin over time, limiting the supply growth, it only takes a little bit of additional demand to generate significant increases in the asset's value.
