Using Bitcoin as a Treasury Reserve Asset drives digital transformation.

Using Bitcoin as a treasury reserve digital asset on the balance sheet of an SME firm will drive its need for digital transformation. The SME will require a bank or custodian to custody its Bitcoin. Investors will drive the need for digital capabilities.  

Bitcoin is a volatile digital commodity that is not subject to monetary inflation.

Bitcoin is known for its high volatility compared to traditional assets like stocks or fiat currencies. Its price can experience significant fluctuations within short timeframes—daily moves of 5–10% are not uncommon. This volatility is driven by a combination of factors, including:

• Speculative trading: A large portion of Bitcoin trading is speculative, leading to rapid shifts in price based on market sentiment, news, and social media influence.

  
  

• Low liquidity relative to traditional markets: Although Bitcoin is widely traded, its market depth is still shallow compared to global currency or equity markets, making it more sensitive to large buy or sell orders.

  
  

• Regulatory uncertainty: Shifts in government policy or legal frameworks—such as bans, tax changes, or securities regulation—can cause sharp price movements.

  
  

• Macroeconomic factors: Inflation fears, monetary policy decisions, or geopolitical events can drive investors into or out of Bitcoin.

  
  

• Market structure and leverage: The use of derivatives and leveraged trading in crypto markets amplifies price swings, especially during liquidations.

  
  

Overall, Bitcoin’s volatility makes it both a high-risk investment and an appealing asset for traders seeking outsized returns. Bitcoin is a highly volatile digital commodity that is not subject to money inflation.

🟧 Some arguments attempt to reconcile Bitcoin’s volatility with its long-term store-of-value thesis:

1. Volatility as a phase of monetization: Bitcoin is still relatively early in its adoption cycle. Advocates argue that volatility reflects a young asset transitioning toward maturity. If adoption grows and market capitalization increases, volatility is expected to decline, similar to how gold and other commodities stabilize over time.

2. Asymmetric upside potential: Despite the swings, Bitcoin has trended upward over time. Some view its volatility as the price of access to outsized long-term gains—so while it may be volatile, it still preserves and grows purchasing power over long periods.

3. Uncorrelated behavior: In some macroeconomic environments, Bitcoin’s price movements are uncorrelated with traditional assets, which can make it attractive as a hedge or portfolio diversifier—a secondary trait of a store of value.

4. Hard cap supply narrative: The fixed supply of 21 million BTC, combined with increasing demand, underpins its long-term store-of-value narrative, even if the short-term price is unstable.

   
   

Still, for conservative investors or those needing stability (e.g., for short-term liabilities), Bitcoin’s volatility makes it a poor store of value in the short term.

🟧 Unlike paper securities, Bitcoin can be traded 24/7.

Regulated financial services SMEs are going to need digital capabilities when their customers are investing in securities of companies that hold bitcoin on their balance sheets. Bitcoin can be traded 24/7.  

⬛ Volatility is going to be a new fact of life - as Bitcoin can be traded 24/7.  

⬛ Customers are going to want digital securities that can be traded 24/7.

If digital securities and commodities can be traded 24/7, then investors are going to want mobile applications and the ability to trade and monitor them 24/7.  Mobile applications, digital platforms in the cloud and integration with digital platforms of custodians and banks will all be required.  SMEs that are regulated financial services providers will need to integrate with a range of financial institutions and digital third-party services providers to create a tech stack and services offering for investor clients.

Bitcoin as a treasury reserve asset drives the need for digital transformation.

Publicly listed SMEs or privately owned SMEs that issue their securities on a regulated digital trading platform can and will incorporate Bitcoin into their corporate treasury through the following strategic steps:

A. The challenges of SMEs developing a Treasury policy for Digital Assets:

• First, they have to define clear objectives (e.g. inflation hedge, capital appreciation, signaling).

• Then establish risk management protocols, including maximum allocation, liquidity thresholds, and rebalancing triggers.

• Finally ensure compliance with local financial reporting standards (e.g. IFRS or US GAAP, which currently treat Bitcoin as an intangible asset).

In an owner managed SME, the owner, not the CFO is going to make these decisions. The approach of younger owners versus owners who have been running businesses for 20 years or more are going to be quite different.  Some SMEs may not have dedicated CFOs for a sophisticated approach as outlined before.  But this strategy will be implemented by SME owners and larger firms as adoption increases.

B. Board and shareholder and approval.

SMEs that are owner managed may not have an independent board of directors. So the owners view of Bitcoin is going to drive the decision making process. 

🔘 Secure approval from the board of directors.

🔘 Consider holding a shareholder vote, especially if material capital allocation is involved.

Owners of SMEs who want to sell or transfer their businesses via earn outs and similar are going to need to consider the impact of regulation clarity for digital assets.  Regulated Financial services SMEs that do not have digital capabilities will likely be losing existing clients and finding it increasingly difficult to acquire new business over the next five years.

C. Legal and regulatory review.

Many owners of SMEs are waiting for the digital assets framework and legal clarity. This way they do not incur large legal fees, that for an owner of an SME is a relevant line-item expense.

• Conduct a legal review to assess securities laws, tax treatment, and disclosure obligations.

• File necessary disclosures (e.g. material change reports, 8-Ks, MD&A sections, etc.)

  
  

The digital assets framework confirming bitcoin as a commodity and defining what is a digital security will enable many owners of SMEs to come off of the sidelines and deploy bitcoin as a treasury reserve asset.

D. Secure custody and risk management.

Using bitcoin as a treasury reserve asset means that the bitcoin will have to be helped somewhere physically in cold storage.  The benefits of cold storage are that there are no counterparties and self-custody can take place.

🔘 Use institutional-grade cold storage solutions or regulated custodians.

🔘 Ensure proper insurance coverage for custodial arrangements.

🔘 Implement multi-signature access controls and internal governance processes.

Keeping large amounts of bitcoin in physical cold storage however calls for high levels of physical security.  The skills and capabilities are needed to establish and operate real physical security. Certainly, executives of SMEs will want bitcoin in cold storage, that is secure.