What To Say When An Investors Asks You..."Are You Planning To Hold Bitcoin?" A Framework for Public Companies

Public companies decision on whether and how to hold Bitcoin (or other cryptocurrencies) need to answer three critical questions:

1. Core Principles for Holding Bitcoin

Does it Align with Business Objectives?

A company should only hold Bitcoin if it directly complements its core business operations or strategic goals. For example, companies in fintech or blockchain sectors might find holding Bitcoin synergistic, whereas companies in unrelated industries may face investor scrutiny over such decisions.

2. What is the Risk-Reward Tradeoff?

Bitcoin is highly volatile and speculative. Companies should evaluate whether holding Bitcoin improves their risk-adjusted returns relative to alternatives, such as reinvesting in their business, repaying debt, or distributing capital to shareholders.

3. Does it Fit Within the Capital Allocation Hierarchy?

• Investing in growth opportunities with a positive net present value (NPV).
• Returning excess cash to shareholders (dividends or buybacks).
• Maintaining a conservative cash reserve for operational needs.

Bitcoin holdings should only come after addressing these priorities, and their role should primarily be as a treasury diversification strategy or inflation hedge.

2. Framework for Deciding to Hold Bitcoin

Step 1: Define the Purpose

• Is Bitcoin being held for operational purposes (e.g., accepting it as payment)?
• Is it a store of value or hedge against inflation/currency risk?

Step 2: Assess Stakeholder Alignment

• Evaluate whether the decision aligns with shareholder interests, considering the company's risk profile and investor base.
• Seek input from institutional investors before proceeding.

Step 3: Evaluate Financial Impact

• Perform scenario analysis to model the potential impact of Bitcoin’s volatility on earnings, liquidity, and valuation.
• Assess the impact on credit ratings, cash reserves, and operational flexibility.

Step 4: Governance and Risk Management

• Establish clear policies for buying, holding, and selling Bitcoin, including thresholds for exposure and rebalancing.
• Designate responsibility (e.g., CFO or a treasury team) and ensure compliance with accounting and reporting standards (e.g., impairment testing under GAAP).

Step 5: Communication Strategy

• Develop a transparent narrative explaining the rationale for holding Bitcoin, how it supports the business strategy, and how risks will be managed.
• Proactively engage with institutional investors and analysts to address concerns.

3. Top 10 Questions and Answers for Institutional Investor Engagement

1. Why is the company holding Bitcoin?

Answer: "Our decision is aligned with our broader strategy to enhance treasury efficiency and hedge against inflation/currency risks. Bitcoin complements our operational needs and offers an asymmetric return profile that we believe can benefit our shareholders."

2. How does holding Bitcoin align with shareholder interests?

Answer: "We have conducted a detailed analysis to ensure this decision aligns with shareholder value creation. Bitcoin is a small, non-speculative part of our broader capital allocation framework, designed to diversify treasury assets while maintaining financial flexibility."

3. What percentage of cash or assets will be allocated to Bitcoin?

Answer: "We will limit our Bitcoin allocation to no more than X% of our cash reserves to ensure adequate liquidity for operational needs while maintaining a conservative risk profile."

4. How will you account for Bitcoin on your financial statements?

Answer: "We will follow GAAP standards, recognizing Bitcoin as an intangible asset subject to impairment testing. Gains or losses will be disclosed as per accounting guidelines."

5. How will Bitcoin’s volatility impact the company's financial performance?

Answer: "We have stress-tested various scenarios to ensure Bitcoin’s volatility does not materially impact our liquidity, credit profile, or operational flexibility. Our allocation size is deliberately conservative to mitigate risk."

6. What is the governance process around Bitcoin holdings?

Answer: "We have established clear policies and procedures for Bitcoin transactions, overseen by our treasury and risk management teams, with board oversight. These policies include limits on exposure, rebalancing criteria, and monitoring mechanisms."

7. Why not use excess cash for buybacks or dividends instead?

Answer: "We remain committed to returning capital to shareholders and will continue our dividend/buyback programs. Bitcoin is part of a broader strategy to preserve and grow value over time while maintaining flexibility in capital deployment."

8. How does this decision compare to traditional treasury strategies?

Answer: "Bitcoin offers diversification beyond traditional treasury assets like cash and short-term bonds. It serves as an alternative store of value in a low-yield environment, complementing—not replacing—our existing strategies."

9. What is the company’s exit strategy for Bitcoin?

Answer: "We are not speculating on short-term price movements. Bitcoin holdings will be regularly reviewed, and we will exit or reduce our position if it no longer aligns with our strategic or financial objectives."

10. How do you think will this impact our (institutional investors’ )view of the company?

Answer: "We have proactively engaged with key institutional investors to address their concerns and ensure alignment. This decision is part of a disciplined and thoughtful approach to capital allocation, designed to enhance long-term value."