The decentralized and anti-inflation characteristics of Bitcoin make it a versatile tool for institutions to hedge against economic uncertainty and maintain long-term value.
Authors of the article: Chi Anh, Ryan Yoon, and Yoon Lee, Tiger Research
Article translated by: Luffy, Foresight News
Summary
The decentralized and anti-inflation characteristics of Bitcoin make it a versatile tool for institutions to hedge against economic uncertainty and maintain long-term value.
Institutional purchases of Bitcoin often signify confidence and innovation, while selling actions are typically aimed at realizing profits or managing cash flow.
The Asian region is increasingly viewing Bitcoin as an investment asset, while governments in countries like El Salvador and the U.S. are implementing measures to recognize Bitcoin as a strategic asset. These developments highlight Bitcoin's growing influence in global economic strategy formulation.
1. Introduction
As an investment asset, Bitcoin has garnered attention due to its unique characteristics that differ from traditional assets like gold. The decentralized and anti-inflation properties of Bitcoin offer new possibilities for institutional asset management strategies.
MicroStrategy is a renowned institutional example that strategically leverages the advantages of Bitcoin. The company effectively uses Bitcoin to address inflation risks and strengthen its financial position. This success story has prompted numerous businesses and financial institutions worldwide to reevaluate their investment strategies.
However, Bitcoin investment may not be suitable for all institutions. Although Bitcoin purchases often attract public attention, many companies have cautiously sold their holdings. This report aims to analyze the reasons behind institutional investments in Bitcoin, explore the key factors influencing different institutions' buying and selling decisions, and study institutional strategies under similar market conditions. As Bitcoin's status as a corporate investment asset continues to rise, this report will also analyze perspectives and corresponding strategies in the Asian market.
2. Bitcoin as an Investment Asset
Institutions have traditionally favored investment assets like bonds, gold, and foreign currencies due to their ability to hedge risk and sometimes preserve value during economic uncertainty. Bitcoin has emerged as a strategic investment asset, providing institutions with an effective, anti-inflation, and profitable alternative to traditional assets like bonds and gold. With a fixed total supply of 21 million coins, Bitcoin ensures scarcity, making it an appealing long-term preservation option.
2.1. The Role of Bitcoin as an Inflation Hedge Tool
Rodriguez and Colombo conducted a study in 2024 (Is Bitcoin an Inflation Hedge Tool?) where they analyzed Bitcoin's response to inflationary pressures using key economic indicators such as the U.S. Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) data from the past decade. The results indicated that Bitcoin's returns significantly increase following positive inflation shocks. However, this effect is more pronounced for price indices that are sensitive (primarily applicable to CPI shocks) and is most significant in the early stages before Bitcoin is widely adopted by institutions. This suggests that Bitcoin's ability to hedge against inflation is context-dependent and may weaken as its adoption expands.
2.2. The Profitability of Bitcoin as an Investment Asset
Source: TradingView
In 2024, Bitcoin's return rate was approximately 127%, significantly surpassing gold's increase of 27% and the S&P 500 index's rise of about 24% during the same period.
However, the value of Bitcoin as an institutional investment asset lies not only in its investment returns. Traditional investment assets have limited trading hours and complex trading processes, making it difficult to respond quickly to interest rate changes or market shocks.
In contrast, Bitcoin offers global liquidity, unrestricted by borders or time zones, allowing for 24/7 real-time trading. High liquidity enables Bitcoin to be quickly converted to cash in any country/region, distinguishing it from traditional financial assets. These characteristics empower institutions to effectively manage assets and respond to market conditions.
With high profitability and practicality, Bitcoin is expected to become an increasingly important investment asset in institutional portfolios.
2.3. The Role of Bitcoin as a Lever in the Attention Economy
The number of publicly listed companies on NASDAQ exceeds 3,300, and the global number of publicly traded companies has grown to a substantial scale. Therefore, attracting investors' attention based solely on strong fundamentals is becoming increasingly difficult. To enhance market visibility, companies are now ramping up investments in marketing.
In such a market environment, Bitcoin generates additional publicity. Since only a few publicly listed companies hold Bitcoin, simply announcing the purchase of Bitcoin as part of a portfolio diversification strategy can lead to substantial media exposure.
Such media coverage brings many positive outcomes for the company, enhancing brand value, attracting interest from retail investors, and strengthening the image of innovation and foresight. In addition to increasing asset value, Bitcoin also plays a role in enhancing corporate value.
3. Institutional Buying and Selling Behavior
As Bitcoin becomes an indispensable part of institutional portfolios, a unique trading model has emerged. Institutions typically publicly announce Bitcoin purchases, sending a strong signal to the market. This strategy helps highlight the company's innovative stance and enhances market confidence. In contrast, selling Bitcoin is done cautiously and usually occurs when profits are realized and funds are reinvested to strengthen core business operations.
3.1. Institutional Buying Behavior: MicroStrategy
MicroStrategy's Bitcoin purchase records, Source: saylortracker.com
MicroStrategy is a leading example of utilizing Bitcoin as an investment asset. By acquiring over 446,400 BTC, the company garnered significant attention from the market. This strategy aims to achieve two key objectives: hedge against inflation and enhance financial stability.
Source: Michael Saylor's X account
CEO Michael Saylor has attracted market attention by fundamentally changing the perception of Bitcoin. Transitioning from a former skeptic to an enthusiastic advocate, he emphasized that 'cash, low-yield bonds, and overvalued tech stocks are vulnerable to inflation and should be avoided.' In the current market environment, Saylor argues that stock buybacks and Bitcoin represent the best use of corporate surplus funds, choosing Bitcoin as a long-term hedge against unlimited quantitative easing.
Contrary to earlier concerns, MicroStrategy's Bitcoin investment strategy has received broad support from many companies. Besides being an inflation hedge, Bitcoin is now regarded as 'digital gold,' reshaping the way companies manage their assets. This innovative initiative to diversify reserves with Bitcoin, alongside traditional assets, points to new directions for global corporate financial strategies.
Boya Interactive Announcement
MicroStrategy's success story is also influencing the Asian market. Boya Interactive has converted its holdings of Ethereum into Bitcoin, while MetaPlanet is actively purchasing Bitcoin in 2024. These initiatives reflect the increasing recognition of Bitcoin's utility in volatility management and long-term value preservation within the Asian market.
3.2. Institutional Selling Behavior: Tesla
Tesla is one of the most notable companies adopting Bitcoin, providing a case that is distinctly different from companies like MicroStrategy. The company sold 75% of its Bitcoin holdings in 2022, attributing this decision to liquidity needs amid uncertain economic conditions. Recently, in October 2024, Tesla transferred $760 million worth of Bitcoin to an unknown wallet, sparking speculation about further sales.
Tesla's Bitcoin investments have been strategically utilized to support its operational and expansion needs, including building new factories in Austin, Texas, and Berlin. Tesla's CFO Zachary Kirkhorn stated that the investment in Bitcoin provides the company with liquidity and a certain level of returns, demonstrating its flexibility as a financial tool for a capital-intensive business.
Similarly, when Bitcoin reached $100,000, Meitu gained considerable profits from the sale. Compared to Tesla's strategic profit-taking, Meitu's decision seems to be a deliberate action to sell at market peaks. Unlike Tesla, which acted discreetly, Meitu publicly explained that this sale was a step to consolidate its financial position in light of challenges faced by its core business. This starkly contrasts with Tesla's secretive sales, indicating that open disclosure helps reduce market uncertainty caused by institutional selling.
The strategic reasons behind institutional buying and selling of Bitcoin are directly related to their financial goals and operational needs. Companies often sell Bitcoin to profit during market peaks, as Tesla did in 2022, or convert held cryptocurrencies into operating capital to reinvest in core operations. The main reasons behind selling actions can usually be categorized as: 1) Profiting under favorable market conditions to expand and improve business operations; or 2) Needing funds to address cash flow challenges. This raises the question: is any future sale a result of strategic financial planning or a stopgap measure to address cash flow issues? Additionally, if the motivation for selling is profit realization, questions arise about how these profits will be used. Will they be reinvested to enhance the business or primarily benefit stakeholders? Regardless, such actions may lead to missed opportunities for further appreciation and diminish the long-term advantages of holding Bitcoin as an investment asset.
4. Asian Institutional Bitcoin Buying and Selling Behavior
MetaPlanet is a prime example of active Bitcoin adoption in Asia. As its nickname 'Asian MicroStrategy' suggests, the company purchased 1,018 Bitcoins in 2024, demonstrating its firm commitment to long-term Bitcoin investment.
The case of MetaPlanet highlights the successful transformation of 'zombie companies.' Zombie companies generate profits only enough to cover operating costs and repay debts but lack capital to drive growth. Despite having substantial cash reserves, MetaPlanet failed to attract attention from the stock market. By benchmarking against MicroStrategy's strategy, the company successfully turned a profit.
In addition to Bitcoin investment, MetaPlanet has also announced plans to expand into new business areas. The company's strategy includes utilizing various financial instruments such as loans, stocks, and convertible bonds to acquire Bitcoin, while also generating profits through put options. This approach is considered an active profit model that goes beyond simple asset holding.
However, this strategy is not applicable to all zombie companies; its success depends on whether companies already established in their respective stock markets can implement differentiated strategies. Latecomers blindly imitating may exacerbate risks and should proceed cautiously, considering factors like corporate cash reserves, market conditions, and risk management capabilities.
5. Conclusion
In summary, the evolution of Bitcoin as an investment asset marks a significant shift in the institutional finance landscape. The decentralized nature of Bitcoin, its anti-inflation properties, and unparalleled liquidity make it an attractive option for achieving asset diversification and long-term preservation of value.
Some governments are also exploring the potential of Bitcoin. El Salvador's adoption of Bitcoin as legal tender is one example, highlighting the asset's role in national strategies for economic growth and financial inclusion. Recently, Trump announced that the U.S. would recognize Bitcoin as an investment asset, or as he put it, 'a permanent national asset that benefits all Americans.' These governmental initiatives indicate that the growing significance of Bitcoin is not only a corporate concern but also crucial for policymakers aiming to modernize the financial system.
It has been shown that buying and selling Bitcoin can benefit companies, especially during market uptrends. In an upward trend, buying indicates confidence in Bitcoin's growth potential, while selling allows companies to realize profits and reinvest in core operations. However, during market downturns, these actions may have negative effects. Buying may raise concerns about whether corporate funds are being used for speculative investments, while selling may lead to questions about whether the company is liquidating assets to cover operational expenses.
For decision-makers, the implications are clear: the potential of Bitcoin as an investment asset is enormous, but it must be carefully integrated into corporate strategy. Companies must weigh the financial benefits of holding Bitcoin (such as liquidity and inflation resistance) against operational risks and market volatility. Whether for long-term reserves or short-term liquidity needs, effectively utilizing Bitcoin requires careful alignment with corporate goals and market conditions.
