The world’s largest cryptocurrency, Bitcoin, has come a long way over the past decade and a half. From initially being a retail investment aimed at wealth accumulation, Bitcoin has evolved to become a recognized store of value for corporations and governments alike.
Several factors have contributed to Bictoin’s ascent as a major safe haven alongside gold and silver worldwide, including geopolitical tensions, macroeconomic uncertainty, and BTC’s outperformance compared to major traditional asset classes.
The value of BTC has risen over 113% in the past year, and it currently trades around $64,000, representing an increase of 94,258% in the last 11 years. This year, Bitcoin had a big moment as the US SEC approved the first-ever Spot Bitcoin ETF, legitimizing the crypto asset and making it easy for organizations to invest in it.
Statistically speaking, Spot Bitcoin ETFs recorded a whopping $27 billion in inflows in Q1 of 2024, which slowed down in Q2 to just $6 billion. The positive flow trend may yet again take off, with July already capturing more than $2 billion in inflows so far. These ETFs are supported by some of the most reputable institutions in TradFi, such as Fidelity and BlackRock, with the latter’s CEO Larry Fink recently calling it “digital gold.”
With the ETF removing the critical regulatory compliance barrier to Bitcoin entry, more corporations have been turning to the crypto asset as a means to diversify and preserve wealth. This shows the changing times and the growing trust and confidence in Bitcoin.
While the crypto asset is still in its infancy compared to other asset classes, Bitcoin has stood the test of time and emerged victorious. Despite volatile market cycles, political pressure, and black swan events, Bitcoin has shown resilience and an increase in its adoption. As a result, even those who were once skeptical of Bitcoin are now publicly endorsing it as a treasury reserve asset.
As we highlighted yesterday, there’s now a growing acceptance of Bitcoin in the TradFi space, with some corporations using BTC to safeguard their cash reserves amidst ongoing inflation, rising government debt levels, and declining trust in fiat currencies.
This makes sense given Bitcoin’s scarcity, as there would only ever be 21 million BTC, and 90% of it is already mined. Unlike fiat currencies, which lose their purchasing power over time, Bitcoin’s capped supply is deflationary. Instead of experiencing an erosion of value over time, BTC has been rising to new ATHs.
Bitcoin’s Growing Usage as a Treasury Reserve Asset
The trend of using Bitcoin as a reserve asset first started in 2020 when MicroStrategy added Bitcoin to its balance sheet. Today, it is holding 226,331 BTC, worth $14.48bln on a cost basis of $8.33bln. MicroStrategy now holds just over 1% of BTC’s maximum supply.
MicroStrategy CEO Michael Saylor believes the US dollar, which has been devaluing since the Federal Reserve took over in 1913, will not retain its global reserve status.
“There’s a macroeconomic wind blowing — big — it’s going to impact $400 trillion of capital. That capital is sitting in fiat instruments that are being debased. That capital is going to want to convert into strong money,” which, according to Saylor, is Bitcoin.
After MicroStrategy, Tesla, Square, and Stone Ridge, among others, also added Bitcoin to their treasury strategies. Recently, publicly traded health tech company Semler Scientific also adopted Bitcoin as its primary treasury reserve asset and purchased 581 BTC, with Chairman Eric Semler calling it:
“A reliable store of value and a compelling investment.”
US-based meat and seafood company Beck & Bulow announced converting 20% of its assets to BTC. It will accept further Bitcoin payments and incorporate it into their employee 401k program. Publicly traded payment business Mogo meanwhile has authorized initial investment of up to $5 million in Bitcoin.
Japanese hotel service company Metaplanet also purchased JPY 1 billion ($7.2 million) worth of Bitcoin in “a direct response to sustained economic pressures in Japan, notably high government debt levels, prolonged periods of negative real interest rates, and the consequently weak yen.”
As of March 31st, the US companies held $187 bln in cash on hand. The estimated total amount of crypto held by private and public companies globally is currently around 816,163 BTC, accounting for about 4% of Bitcoin’s total supply.
While a slow number, there’s a slow but steady increase in Bitcoin being incorporated into treasury reserves, which isn’t limited to just companies. Even governments are now showing an inclination, including the US. According to Alex Thorn of Galaxy Digital, “Simple game theory dictates that adoption by one nation necessitates that other nations consider the same, whether friend or foe.”
Under Trump, the USA Might be Ready for Bitcoin
After facing mounting regulatory pressure over the past few years in the US, Bitcoin finally got legitimacy when ETFs were approved, but now things may even get more exciting for the trillion-dollar crypto asset.
The rumor mill is going strong on former US president and current Republican presidential candidate Donald Trump announcing Bitcoin as a “strategic reserve asset” during the Bitcoin Conference 2024 in Nashville later this month.
Trump will be the keynote speaker at the upcoming crypto conference, which will take place from July 25th to 27th. He is also hosting a campaign fundraiser at the event, where the top ticket will cost $844,600 per person. The top-tier tickets will include a seat at a roundtable with Trump.
According to the newly released campaign finance data, Trump’s campaign has already captured $3 million in crypto contributions. Some of the industry’s major players contributed, including Kraken co-founder Jesse Powel and the Winklevoss twins. Around 100 people donated crypto to Trump’s campaign between May and the end of June.
This comes as Trump reversed his stance on crypto and came out as Bitcoin-friendly. Back in 2019, he criticized Bitcoin for its volatility and potential for unlawful use, and earlier this year, he urged voters to support him if they favored crypto assets.
Last month, Trump also posted, “We want all the remaining Bitcoin to be made in the USA!” on social media and warned that any policy that seeks to block Bitcoin “only helps China and Russia.” Trump’s strong support for Bitcoin positioned him as the first pro-bitcoin nominee.
This week, Trump also announced Senator JD Vance as his vice-presidential candidate for the 2024 election. Vance is a Bitcoin holder and a notable proponent of cryptocurrency. According to Matthew Sigel, head of digital assets research at VanEck:
“Trump’s track record of deregulation, combined with Vance’s tech-savvy background, could pave the way for a more favorable environment for crypto entrepreneurs and investors.”
So, as Trump came in favor of crypto, Dennis Porter, co-founder and CEO of the Satoshi Action Fund, said “credible” sources have told him that Bitcoin will be added to the US’s treasury reserves.
“Adding #Bitcoin as a ‘strategic reserve’ to the US Treasury is a no brainer and once the USA does it, the paradigm will shift and the world will understand they must also have a #Bitcoin position,” he posted on X (previously Twitter).
Trump’s advisor, Vivek Ramaswamy, has actually proposed backing the dollar with a basket of commodities, including Bitcoin. Then there’s Robert F. Kennedy Jr., who has suggested backing a portion of US Treasury bills with hard currency, including BTC. Other political leaders have also been advocating for Bitcoin and called for leveraging the cryptocurrency as a reserve asset, with Senator Cynthia Lummis in favor of diversifying the Fed’s foreign currency holdings with Bitcoin. Lummis believes:
“Bitcoin is an incredible store of value, and I certainly see the benefits of our country diversifying its investments.”
Many argue that making Bitcoin a reserve asset would actually ensure the dollar’s dominance in the global financial landscape.
Already, the US is the largest nation-state holder of Bitcoin, with over 200,000 BTC; however, these were seized from illicit actors. If the United States were to support Bitcoin officially, it would be a groundbreaking moment for the cryptocurrency, potentially triggering a significant surge in its value and marking a transformative moment in the nation’s financial policy.
While this would help Bitcoin attract new investors and boost its prices, many believe Trump’s ongoing pro-crypto stance is simply a strategy to win the election. It’s only after elections that “the implementation of this initiative will become clearer.”
Having said that, one way the US can utilize Bitcoin strategically as a reserve asset is by pulling the same move as El Salvador.
El Salvador’s Bitcoin Stash Grows to Over 5,800 BTC
In 2021, the El Salvador government officially adopted Bitcoin as legal tender alongside USD and is currently holding 5,815 BTC worth over $370 million.
The country bought its first 200 BTC when it announced the cryptocurrency as a legal tender. The rest has been accumulated by mining with Volcano Energy and buying one BTC per day.
The Central American country first published the legislation in June of that year, and by the end of the first week of September, it had made the digital currency legal tender within the nation. With this move, El Salvador became the first country in the world to formally make Bitcoin a legal tender.
Under its legislation, Bitcoin is accepted as payment for goods and services, used to make tax payments, discharge debts in transactions, and pay previous obligations expressed in US dollars. However, the accounting standards continue to use the USD as the reference currency.
For El Salvador, the decision to adopt Bitcoin was actively driven by the need to streamline international remittances, which constitute over 20% of the nation’s GDP. By switching to digital currency, El Salvador has managed to cut the exorbitant costs typically associated with these transactions, often ranging from 30-50% of the transfer value, while also accelerating the speed of transfers.
While President Nayib Bukele said BTC could be a boon for remittances, the on-condition is significantly different. In reality, only an estimated 1% of citizens use cryptocurrency for money transfers so far. This is because simple transactions incur fees of $20 or more.
In addition to remittances, El Salvador has adopted Bitcoin to provide its largely unbanked population—about 70% of its citizens—with easier access to financial services and reduce its dependence on the US dollar.
El Salvador’s adoption of Bitcoin as a neutral store of value for savings came despite the warnings from the International Monetary Fund (IMF), which asserted that the crypto’s adoption as a legal tender raises several financial, macroeconomic, and legal issues that require careful analysis.
The IMF has also stressed that Bitcoin’s use has large risks to financial stability, financial integrity, and consumer protection. Moreover, the Fund called the situation “unsustainable” as it “crowds out private investment and limits resources for social and infrastructure spending, all impediments to growth.”
The World Bank also initially rejected the nation’s request for assistance with implementation due to Bitcoin’s perceived shortcomings in environment and transparency.
Despite the challenges, El Salvador has successfully adopted Bitcoin and even dedicates a small portion of the 102 megawatts produced by the state-owned power plant to BTC mining. The government has also launched a proof-of-reserves website to monitor and track the country’s BTC holdings using on-chain data.
Bitcoin Adoption as Legal Tender Gains Traction
Soon after El Salvador’s declaration, Carlitos Rejala, a member of Paraguay’s Chamber of Deputies, proposed a similar bill. While that hasn’t become a reality yet, the country’s Senate has passed a regulatory and tax framework for enterprises operating in the crypto and mining sectors. In recent years, Paraguay has become a home for bitcoin miners driven by the country’s ultra-low taxes and cheap electricity.
A special economic zone on a specific tourist-centric island in Honduras meanwhile has adopted BTC as a legal tender. In contrast, Honduras’ National Banking and Insurance Commission (CNBS) has prohibited crypto from the country’s financial system “with immediate effect.”
Then there’s the Central African Republic, which is yet another country besides El Salvador that has made Bitcoin legal tender. A couple of years ago, lawmakers unanimously adopted a bill that legalized the use of cryptocurrencies and made BTC legal tender alongside the CFA franc.
President Faustin Archange Touadera signed the measure into law in 2022, making the CAF “the first country in Africa to adopt Bitcoin as legal tender.” The measure is to enable “strong and inclusive growth” in the CAF, which is among the poorest nations.
With this move, the CAR has been put “on the map of the world’s boldest and most visionary countries,” said Touadera’s chief of staff, Obed Namsio, in a statement at the time.
The Central African Republic is among the most troubled nations. It is dealing with a decade-long civil conflict and depends on mineral extraction. It is one of six central African countries—Cameroon, Chad, the Republic of Congo, Gabon, and Equatorial Guinea—that use the CFA franc as currency. This regional currency is backed by France and pegged to the euro.
Much like El Salvador, the IMF also warned the CAF of major legal, transparency, and economic policy challenges posed by adopting crypto assets. “IMF staff are assisting the regional and CAR’s authorities in addressing the concerns posed by the new law,” Bloomberg reported the global body’s response to this development.
Other countries interested in adopting Bitcoin include the South American country Suriname, which has proposed this move to address its economic challenges but has yet to make any progress. Tonga, an island nation in the South Pacific Ocean, has also been exploring the potential benefits of Bitcoin. However, the government hasn’t yet taken any official steps to adopt Bitcoin as a treasury reserve asset.
Final Thoughts
Bitcoin acceptance has been rising at a fast pace, and it’s not only among the retail but institutions and governments are just as interested thanks to the crypto asset’s resilience, scarcity, and adoption.
In the current macroeconomic environment, with inflation rising, fiat currencies devaluing, and political uncertainties growing, the decentralized crypto king, which is not governed by changing monetary policies and rising debt levels, is also making an appearance in the treasuries as a reserve asset.
Even countries like the US, China, and the UK are holding Bitcoin; however, these are not purchased by these nations but rather seized from criminals. Also, these will eventually be auctioned off, as Germany recently did. Previously, the US sold 195,000 BTC for $366 million, which would today be worth $12.48 billion.
This may finally change, though. Up until now, smaller nations have been exploring various aspects of Bitcoin. With Trump emerging as a pro-Bitcoin presidential candidate, we may finally see one of the largest and wealthiest nations in the world legitimizing BTC as a reserve asset, which would have vast implications for not just Bitcoin but the entire crypto industry.
For now, it’s too early to say, as Bitcoin is not only becoming contingent on Trump’s victory in the November 2024 US presidential election but also remains a largely speculative assertion. However, the wind is changing, and Bitcoin is seeing widespread adoption across populations, institutions, and nations.
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