Jameson Lopp, CTO at Bitcoin (BTC) focused firm Casa, notes that large to mid-sized corporations using Bitcoin as a primary reserve asset in their treasuries has become quite a hot topic this year, mainly because of business intelligence firm Microstrategy’s “all-in” move.
There’s also the company CEO Michael Saylor’s “all-out” media blitz which focuses on analyzing or breaking down the “logic behind this strategy,” Lopp writes in a blog post. Jack Dorsey’s payments firm Square (NYSE:SQ) has also allocated a significant amount of its assets and overall business strategy towards supporting Bitcoin, the world’s leading cryptocurrency.
Lopp confirms that, at present, the team at Casa is aware of around 4% of the total BTC supply being “held in corporate treasuries.”
Lopp explains that the job of a corporate treasurer is to always safeguard the value of the assets residing in the treasury. If a company’s treasury is held mostly in fiat, then you can be “sure that it is only going to lose value over time,” Lopp claims.
He adds:
“Corporate Bitcoin treasuries are nothing new, at least for companies that earn revenue in bitcoin. While many merchants over the years simply added Bitcoin as a checkout option and used it as a payment rail–automatically converting funds to fiat to protect themselves from volatility risks–Bitcoin-focused companies tend to be run by believers who are long-term bulls and see their offering of goods and services as just another means of acquiring more Bitcoin.”
Lopp also mentions that historically, businesses or organizations that have maintained their treasuries in BTC over extended periods of time have “benefited tremendously.” He points out that WikiLeaks is one of the most noteworthy examples, “seeing appreciation of over 50,000%.”
In addition to the potential rewards come “new types of risks,” Lopp acknowledges. He confirms that attackers will attempt to “gain access to digital bearer assets, regardless of whether they are held by an individual or a corporation.” He predicts that we’ll most likely continue to “see more and more sophisticated spear-phishing and social engineering attacks against organizations.”
Lopp recommends:
“Corporate Bitcoin treasuries will be dealing with large sums of money and must take care to eliminate single points of failure, even against insider attack. A well thought-out key management architecture is the first step, though it must also be coupled with protocols and processes to ensure that the humans managing the keys don’t get tricked by a savvy social engineer.”
Many large firms have been using “trusted” third-party custodians to safeguard their BTC holdings, Lopp notes. He adds that although this approach might be “okay,” if you’re “dipping your toe into the water, over the long term it’s risky and counter to the ethos of this entire ecosystem,” Lopp argues.
He also reveals that Casa began taking BTC payments back in 2018 (when it launched its operations). Lopp points out that “without any middlemen – [the company] runs [its] own BTCPay server that is integrated directly into [its] back end infrastructure.” Lopp further explains that this server “manages a watch-only wallet for handling payments; there are no private keys online for hackers to steal.” Instead, the private keys reside on dedicated hardware that’s used to “sweep the funds from this single-signature wallet into [the firm’s] corporate treasury multisig wallet on a regular basis.”
Lopp claims that Casa spends its Bitcoin “extremely rarely” because they consider it to be “a reserve asset that should only be liquidated in dire circumstances to help sustain us through tough times.” He also mentions that spending less frequently has the benefit of “simplifying our accounting overhead.”
Firms or business owners need to understand that custodial risk is “a real problem with digital bearer assets and they need not expose themselves to it,” Lopp notes. Although keeping your Bitcoin with a trusted third-party might protect people from fiat inflation risks, they’re “giving up [their] protection from systemic risk,” Lopp explains.
He adds:
“Unlike large financial organizations that may act on behalf of investors to manage their assets, corporate treasuries are not subject to the qualified custody rule in the Investment Company Act because they are not financial advisors. Self custody is certainly on the table for corporate treasuries.”
Lopp further notes that he suspects that most firms that aren’t operating in the Bitcoin economy don’t hold their own keys because of “a lack of sophistication on their part, and possibly due to a desire to have a third party to blame if anything goes wrong.”
(Note: to learn more about what Lopp and Casa recommend doing when it comes to managing Bitcoin treasuries, check here.)