Should You Invest in Companies with Bitcoin on Their Balance Sheets?

By Don Friedman | CEO, The Truth About Your Future
January 3, 2025

Lots of clients are asking their advisors about investing in companies with bitcoin on their balance sheet. If you haven’t yet heard this question, you soon will – and that means you need to determine if your clients are better off owning the stocks of these companies (i.e. MSTR) instead of the spot bitcoin ETFs.

Why Michael Saylor Advocates for Bitcoin on Corporate Balance Sheets

All companies have reserves, typically in cash or short-term debt instruments like T-bills. Holding bitcoin as a reserve asset is simply an alternative for some of those reserves.

The arguments for doing include hedging against inflation, currency devaluation and geopolitical risks; diversifying reserve holdings; and increasing the company’s market cap. No one has adopted this idea more than Saylor; MicroStrategy now owns more than 444,000 bitcoins. If he’s right and bitcoin becomes a cornerstone of global finance, buying it now is a smart strategic move. And FASB’s recent rule change permitting corporations to use fair market value accounting for their crypto holdings (allowing crypto assets to be valued each reporting period) is regarded by many as the removal of a key obstacle that prevented corporations from engaging in this strategy.

Understand the Risks

Bitcoin’s price volatility can impact a company’s quarterly financial statements, which can lead to swings in a company’s stock price. It’s not unusual, for example, for MSTR’s price to rise or fall 5% or more in a single day. The industry is also waiting for clarity in bitcoin accounting and tax rules, and adverse decisions could impede a company’s interest in adopting or maintaining bitcoin reserves. Finally, a company’s bitcoin reserves might not be significant enough to impact its stock price.

Stick with ETFs?

MicroStrategy is regarded as a bitcoin proxy, and it’s a stock, not an ETF. It can often be bought and sold fee-free, while ETFs charge annual (albeit low) fees. So, discuss the options with your clients; the array of options for adding crypto to a diversified long-term portfolio is large and growing, such as SMAs, private placements, picks-and-shovels ETFs, and more.

In fact, ETFs are emerging that invest in companies that invest some of their reserves, a la MSTR. Like all ETFs, these offer diversification for those who like the reserves strategy, and their entry into the market demonstrate the need for you to stay aware of the latest developments in this fast-growing asset class.