An Introduction to Bitcoin (BTC)
Bitcoin (BTC) – depending on whom you ask, you’re going to receive a variety of responses as to what it is exactly:
- A cryptocurrency
- A store of value
- Digital gold
- A scam
- Modern day tulip mania
For the sake of this article, we’re going to call Bitcoin a “digital asset” as it can be bought and sold with complete liquidity and has a dollar denominated value allocated to it. At the time of this article being published (November 29, 2022), Bitcoin is currently $22,344 CAD, down almost 80% from its all-time-high of approximately $80,000 CAD. Bitcoin is no stranger to volatility though. If you have a look at the chart since the crypto’s inception Bitcoin follows a cyclical price chart that appears to follow a pattern based on the Bitcoin Halving.
So, what does this all mean for Bitcoin as an asset? Can it be utilized as equity in a business for the crypto savvy? We’ll dive into this perspective as per the views of the Canadian Surety Bond Industry.
Bitcoin as Equity on a Corporate Balance Sheet
We surveyed top Canadian Surety Underwriters and asked the question, when it came to Bond Facility implementation for clients, can Bitcoin be considered equity and leveraged as capital for the facility? Every Underwriter had a unique response, but we received answers ranging from “absolutely not”, to “we would discount it at 50%”. A 50% discount on equity valuation for the digital asset could be considered quite generous at this time, when reviewing the coins price performance over the past year.
As of November 2022, Canadian Surety Underwriters will discount Bitcoin on a balance sheet as much as 80%, or even not accept it as equity at all.
There’s always the option of selling the Bitcoin for cash and eliminating the discount issue; however, if a corporation is holding significant amounts of Bitcoin on their balance sheet, it’s likely they are a “HODLER” (one that buys and holds for the long term) and not willing to part with their coins unless in a dire situation.
Will Time Change Things for Bitcoin and the Surety Bond Industry?
Absolutely! Bitcoin, although the top dog and longest standing project in the Crypto industry, is still relatively in its infancy as a financial tool. Its network effect would be difficult to replicate or replace by other blockchain projects considering it has an anonymous founder, 21 million hard cap of coins backed up by code, significant decentralization and distribution of the ledger / mining power, not to mention it’s longest standing and original blockchain. There are now even Bitcoin Group Benefits programs offered by firms like Paramount Benefits. It seems that time will tell if Bitcoin can fulfill its proponent’s vision of the defacto world reserve currency and ultimate safe store of value.
It’s also important to mention that blockchain technology can enable many improvements that would be directly applicable to the Surety Bond industry when leveraging immediate transaction finalization and transparent record keeping. Crypto projects like Ethereum (ETH) and Polkadot (DOT) are leading the charge on these utilizations with “smart contracts”. We’ll be keeping our finger on the pulse of Bitcoin, and crypto in general as it applies to the Surety Bond industry and our clients’ equity options.
If you’re an individual or corporation seeking Surety Bonds and would like to leverage your Bitcoin (and potentially other digital assets), we’d be happy to align you with Underwriters that have a similar mind set on the asset. Get started by booking a consultation via the button below.
