Bitcoin as a Treasury reserve asset, SMEs and digital transformation

A growing number of listed companies—especially those with limited access to traditional capital markets—are turning to Bitcoin as a treasury reserve asset. Soon, SMEs that are not listed but are private will also begin to use Bitcoin as a treasury reserve asset. When a company “uses Bitcoin as a treasury reserve asset,” it is choosing to hold a portion of its corporate cash reserves in Bitcoin instead of—or in addition to—traditional treasury assets such as bank deposits, short‑term government bonds, or commercial paper. Privately held companies will conduct both primary issuances and secondary trading of digital securities on regulated digital platforms. This trend, led by high-profile adopters like MicroStrategy and Tesla, is no longer limited to large corporations. Small and medium-sized enterprises (SMEs) that are listed are also beginning to explore this shift as a means of enhancing their financial resilience and investor appeal.

This development marks a significant evolution in corporate treasury strategy and is poised to transform how listed and private SMEs approach capital formation, balance sheet optimization, and competitive positioning in the digital age.

Why use Bitcoin as a treasury reserve asset?

Bitcoin is used as a treasury reserve asset for a number of reasons;

✅ Bitcoin is a digital commodity, not a security in the eyes of US law.

🧿 Bitcoin is not subject to debasement by monetary expansion - no individual or group of people can increase the supply of bitcoin.

⭕ Immutable - the bitcoin blockchain is transparent. Services provide evidence of ownership and it cannot be hacked or changed by an administrator or a select group of people.

These principles and others make Bitcoin ‘digital capital’.  See Michael Saylor for a more profound disposition on the economic nature of Bitcoin.

The use of Bitcoin as a treasury reserve asset.

Bitcoin is retained on the balance sheet as a reserve asset that is not subject to debasement due to government printing of money.  

The volatility of bitcoin on the operating companies balance sheet, drives the valuation of not only the equity of the company but other securities that the operating company issues such as bonds, convertible bonds, and preferred shares. 

The operating company is able to retain and attract capital by accumulating Bitcoin in its treasury on its balance sheet. This is going to change the game with respect to corporate finance and the ability of SMEs to continue to exist, compete and develop competitive advantage. 

Tapping into Volatility.

Mathematical finance has for a long time used a number of fundamental principles that have been spread widely as doctrine. One example is Portfolio diversification, which seems to make common sense and to some extent does.  Other principles were used to measure risk of a portfolio of securities. Standard deviation, variance, sigma representing the random unknowable nature and behavior of prices of securities. 

The Black Scholes formula uses sigma of security prices as a parameter to determine the price of an option security.  A lot of the objectives of mathematical finance or risk management was about managing portfolios and the Value at Risk to act as a store of value. The value at risk always seemed to be driven by volatility, which was not good if it increased Value At Risk (“VaR”) or reduced portfolio diversification.

With bitcoin being used as an asset on the balance sheet that is not going to be subject to printing by the government, the principles of mathematical finance and corporate finance are now fundamentally changed.

Portfolio diversification  -  There is only one Bitcoin that is not being debased by any government or group of people. So diversification of bitcoin is not an option.

Volatility - has to be embraced if Bitcoin is being used as treasury asset that is not subject to money printing and monetary inflation.  Now we have a lot of volatility on the balance sheet by the presence of bitcoin as treasury reserve asset.  There is not attempt to risk manage the volatility of bitcoin.  Because Bitcoin is traded 24/7/365, the price behavior or volatility is greater than most securities that can only be traded during limited hours.  The volatility of bitcoin on the balance sheet drives the value of the equity and the value of securities that are derivatives of the equity of the issuing operating company.

So, portfolio diversification and reducing volatility are no longer economic principles to be used to drive the price of the equity and pricing of securities issued by the operating company with bitcoin on its balance sheet.

Bitcoin is a Newtonian not a Metcalfe network.

Bitcoin is going to be an excellent treasury reserve asset because of its qualities and because of its story be if adoption which is going to unfold before our eyes.  Currently there are some 100M persons on the bitcoin network of one type or another.  Adoption of bitcoin continues to increase with time.  What will the price of bitcoin increase to when there is two or three hundred million persons on the bitcoin network.  The current rate of adoption of bitcoin indicates adoption will continue.  Why will adoption of bitcoin continue? Because it is a Newtonian network that will attract more money and investors by its very nature.

What is a Newtonian network?

A Newtonian network is a network of bodies that are linked and networked by gravity and related factors.  If a large planet, say ten times the size of earth, were to approach or pass near to earth, the gravitational forces exerted by the large planet on the smaller earth would be massive. Earth would be attracted into the orbit or towards the larger planet. In Newtonian networks larger planetary bodies attract smaller bodies.  The way the earth’s gravity attracts asteroids for example.

In the case of operating companies and listed entities that have bitcoin on their balance sheets, the large planetary bodes that will attract others into the bitcoin network are the large, regulated institution pools of bitcoin. ETFs, Private Equity funds, banks. Large regulated financial institutions that hold Bitcoin will attract large amounts of capital from small, regulated bodies and investors into the bitcoin network.  

The USA has announced a Strategic Bitcoin reserve and the implementation and existence of this reserve will drive confidence and adoption by more US retail and accredited investors.  Likewise, as other large regulated financial institutions like banks begin to custody bitcoin, and eventually recommend it to their customers, capital from investors who accumulate their capital in private banks and other regulated institutions will be attracted to bitcoin.

Large regulated financial institutions and listed companies with Bitcoin on their balance sheets will attract other investors to adopt bitcoin over time.  This process of adoption among other factors will drive the price of bitcoin.

🔦 Why is the use of Bitcoin as a treasury reserve asset important to SMEs?

Owners of regulated financial services companies in particular and all SMEs are going to be very interested in the adoption of bitcoin as a treasury reserve asset. Bitcoin is a digital commodity or digital capital.  In order for an SME to place bitcoin on its balance sheet transparently the SME is going to need a number of digital capabilities.

Private SMEs, that are not listed are able to issue digital security tokens and then those digital security tokens can be traded by accredited investors in a secondary market provided by a regulated digital platform.  

The investors in listed and private SMEs are going to want to use digital applications to connect with their investors, custodians, banks and more.  Adoption of Bitcoin is going to drive the adoption of digital capabilities of regulated financial services firms.