Written by: Luke, Mars Finance
Recently, Bitcoin has once again become the focus of the financial world: the Pennsylvania House of Representatives officially proposed the Pennsylvania Bitcoin Strategic Reserve Act, suggesting that 10% of the state treasury's approximately $7 billion funds be allocated to Bitcoin to cope with inflation and optimize the investment portfolio. Meanwhile, U.S. Senator Cynthia Lummis introduced a more ambitious proposal in Congress, suggesting the establishment of a 'Bitcoin Reserve' operated by the Treasury, with plans to purchase up to 1 million Bitcoins over the next five years. Trump also stated at the Bitcoin conference on July 28 that if elected president in November, he would promote the establishment of a 'strategic Bitcoin reserve' in the U.S. and prevent the government from selling its existing Bitcoin reserves. Michael Saylor further emphasized at the Cantor Crypto Conference in Miami that Bitcoin is an asset with no counterparty risk, and 'strategic Bitcoin reserves will be the greatest trade of the 21st century.' He believes that if the U.S. implements a strategic reserve, other countries will have to follow suit.
Indeed, the reality is that not only the United States, but also an increasing number of countries and institutions globally are beginning to seriously consider incorporating Bitcoin into their strategic reserves. According to the latest report from Bitwise Europe, positive sentiment regarding U.S. policy measures, combined with Bitcoin's supply contraction, is driving the price of Bitcoin upwards. Betting activities on Polymarket also reflect the market's sharply rising expectations for establishing national Bitcoin reserves. On the corporate side, companies like MicroStrategy continue to purchase large amounts of Bitcoin, further consolidating this trend.
Binance CEO Changpeng Zhao (CZ) publicly stated: 'Countries will compete to list Bitcoin as a reserve asset in the coming years; no country wants to be the last to take action.' From the U.S. government's legislative attempts to the trend of corporate asset allocation, Bitcoin's status as 'digital gold' in the global financial system is becoming increasingly solidified. Globally, the total number of Bitcoins held jointly by governments, institutions, and companies exceeds 2,669,855, accounting for 12.7% of the total Bitcoin supply.
Why do nations and companies choose to hold Bitcoin as a reserve asset? Is it merely an investment strategy or a redefinition of future currency order?
The Bitcoin journey of enterprises: diverse strategic considerations and layouts
As of 2024, the total amount of Bitcoin held by companies globally has exceeded 1.3 million, accounting for 6.2% of the total Bitcoin supply. These companies span various fields, including tech giants, mining companies, and fintech enterprises.
MicroStrategy leads with a significant holding of 331,200 Bitcoins, accounting for 1.577% of the total Bitcoin supply. Since 2020, the company has continuously increased its Bitcoin holdings, with a total investment exceeding $16.5 billion. Its Executive Chairman, Michael Saylor, has repeatedly claimed that Bitcoin is the 'safest asset' and can effectively hedge against inflation and protect the value of the company's reserve assets.
Tesla was one of the significant 'pumps' in the last bull market. At the beginning of 2021, Tesla announced the purchase of $1.5 billion worth of Bitcoin, attracting widespread attention in the global market. Although it later cashed out some Bitcoin assets, Tesla still holds 9,720 Bitcoins, demonstrating its confidence in Bitcoin as a long-term asset allocation tool.
Square (now Block, Inc.) views Bitcoin as an important part of its payment and financial ecosystem. Currently, Block holds 8,211 Bitcoins, with a total investment exceeding $240 million. The company's CFO, Amrita Ahuja, has stated: 'Bitcoin is not only part of asset management but also a continuation of our mission to drive economic empowerment and technological innovation.'
Moreover, mining companies and trading platforms also play an important role in Bitcoin holdings. For example, Marathon Digital Holdings holds 25,945 Bitcoins, primarily sourced from its mining operations. Coinbase, as one of the largest cryptocurrency trading platforms in the world, holds approximately 9,000 Bitcoins, providing liquidity support for the platform's reserves.
Today, the AI company Genius Group also announced that it will convert most of its reserve assets into Bitcoin. The company purchased 110 Bitcoins for $10 million, averaging about $90,932 per Bitcoin. This move is part of its plan to hold over 90% of its current and future reserves in Bitcoin, with an initial target of $120 million.
The motivations behind these companies' decisions to hold Bitcoin are rich and diverse, including hedging against economic fluctuations, enhancing asset returns, and participating in the digital economy ecosystem. Globally, companies' focus on Bitcoin goes beyond short-term investment returns, reflecting a strategic layout for future currencies and financial systems.
1. Hedging against inflation risks
Against the backdrop of ongoing global monetary easing policies, inflation expectations are rising, and many companies' cash reserves are facing the risk of purchasing power shrinkage. For example, MicroStrategy, as one of the earliest companies to purchase Bitcoin on a large scale, currently holds about 330,000 Bitcoins, with a total investment exceeding $4.9 billion, and its average purchase price is $49,874 per Bitcoin. As of November 2024, its overall investment yield has exceeded 80%. Company Executive Chairman Michael Saylor stated that they chose Bitcoin because they believe it can protect wealth from the erosion of currency depreciation.
According to data from the International Monetary Fund (IMF), since 2021, the average annual inflation rate of major global economies has been about 5%, while Bitcoin's price has risen over 300% during the same period. This growth rate shows that Bitcoin has become an important option for companies to cope with inflation.
2. Asset diversification
Traditionally, corporate reserve assets are primarily cash and short-term bonds, but in an increasingly complex global economic environment, Bitcoin is gradually becoming an effective means for companies to achieve asset diversification and enhance financial flexibility. Tesla is such an example; it purchased $1.5 billion worth of Bitcoin at the beginning of 2021 and still holds 9,720 Bitcoins in mid-2024. Although the price volatility of Bitcoin poses certain challenges to finances, Tesla CEO Elon Musk believes that Bitcoin's long-term return rate far exceeds that of traditional asset allocation. As mentioned in the company’s financial report, 'the addition of Bitcoin allows us to manage our cash assets more flexibly while obtaining potential high returns.'
Such strategies are not uncommon among enterprises. According to data from treasuries.bitbo.io, there are currently 92 companies globally holding Bitcoin, totaling over 2.6 million, accounting for 12.7% of the total Bitcoin supply. This data indicates that asset diversification strategies are gaining increasing favor and practice among companies.
3. Technological innovation and brand image: standing at the forefront of the times
For many companies, holding Bitcoin is not only an investment but also a way to showcase technological innovation and values. By supporting decentralized technology and the digital economy, these companies demonstrate their commitment to the future. Block, Inc. holds 8,211 Bitcoins, with a total investment of approximately $240 million. The company promotes the development of Bitcoin payment technology, and its payment platform Cash App allows users to buy and hold Bitcoin directly. This strategic choice helps enhance the company's technology image among young users while demonstrating its determination to advance new economic technology.
The public generally holds a positive attitude towards companies that hold Bitcoin. According to a survey, over 50% of millennial consumers prefer to support companies that 'value digital assets and blockchain technology.' For technology companies, this strategy clearly helps enhance brand image and attract a younger user demographic.
4. Core reason: Potential high returns
The long-term growth potential of Bitcoin makes it an important choice for companies to achieve asset appreciation, as companies are ultimately driven by profit. Although Bitcoin's price is highly volatile, its average annual growth rate has exceeded 100% over the past decade. Marathon Digital Holdings currently holds 25,945 Bitcoins, with a total investment exceeding $800 million. The company's CEO, Fred Thiel, stated that while Bitcoin's volatility poses risks, it also provides unprecedented growth opportunities. They firmly believe that by holding Bitcoin, the company will create tremendous value for shareholders in the coming years.
Historical data shows that since 2013, the price of Bitcoin has increased more than 200 times, far exceeding the return rate of the S&P 500 index during the same period. Although there are fluctuations in the short term, the long-term appreciation potential has created tremendous appeal for companies.
Sovereign countries: The motivations behind Bitcoin strategic reserves.
In recent years, in addition to companies actively incorporating Bitcoin into their asset allocations, some countries have also begun to attempt to use Bitcoin as part of their national strategic reserves. On November 10, Bitcoin magazine CEO David Bailey revealed on social media: 'At least one sovereign country is actively acquiring Bitcoin and has entered the ranks of the top five Bitcoin holders globally. Hopefully, we will hear from them soon.' This statement has sparked widespread attention to the situation of sovereign countries holding Bitcoin.
Currently, multiple governments worldwide, including the U.S., China, and Russia, are either actively or indirectly involved in holding Bitcoin. The U.S. is the country with the most Bitcoin holdings globally, with a reserve of 207,189 Bitcoins, primarily sourced from confiscations and seizures in law enforcement actions, currently valued at approximately $18.87 billion, accounting for 0.987% of the total Bitcoin supply. In the future, if Trump's proposal is passed, the U.S. will also actively establish Bitcoin reserves.
China ranks second with 194,000 Bitcoins, valued at approximately $17.67 billion. These Bitcoins mainly come from government confiscations after cracking down on illegal activities. Although China has implemented strict regulations on cryptocurrencies at the policy level, the Bitcoins confiscated during judicial disposal and law enforcement still constitute a source of indirect holdings.
Russia's Bitcoin holdings are primarily achieved indirectly through its rich mining resources. Although the Russian government has not disclosed specific holding amounts, its mining industry accounts for about 11% of global Bitcoin mining share, ranking third in the world. This provides an important basis for Russia to accumulate Bitcoin reserves through mining. Due to Western sanctions, Russia is seeking to bypass the SWIFT system with Bitcoin and explore new ways of cross-border trade. In 2024, President Putin signed a law to officially legalize Bitcoin mining and use abundant energy resources to support the Bitcoin mining industry. Russia also proposed using cryptocurrency to pay for international trade payments, highlighting Bitcoin's position in Russia's financial sovereignty strategy.
Other countries are also gradually emerging in the Bitcoin space. The UK holds 61,000 Bitcoins, worth $5.56 billion; Ukraine holds 46,351 Bitcoins, worth $4.22 billion; while Bhutan holds 13,029 Bitcoins, worth $1.19 billion. In addition, El Salvador, as the first country in the world to make Bitcoin legal tender, currently holds 5,748.8 Bitcoins, valued at about $520 million. This action marks the country's proactive exploration of Bitcoin as an economic tool.
The motivations behind sovereign countries choosing to hold Bitcoin are diverse: hedging against economic risks, achieving financial sovereignty, circumventing economic sanctions, and promoting digital economy innovation.
1. Hedging against economic sanctions and enhancing financial sovereignty
For some countries facing international economic sanctions, Bitcoin's decentralized characteristics provide a way to bypass the traditional financial system. For example, countries like Venezuela and Iran face severe obstacles in international transactions and capital flows due to financial sanctions from Western countries. Bitcoin does not rely on traditional banks and intermediary institutions, making it a tool for these countries to circumvent sanctions, maintain international trade, and acquire foreign exchange.
Moreover, by holding Bitcoin, nations can reduce their dependence on the dollar to some extent, thereby enhancing their financial sovereignty. Particularly for some developing countries that are concerned about dollar hegemony, holding Bitcoin has become an important means of increasing financial independence. El Salvador is a typical example in this regard—having made Bitcoin legal tender in 2021 and added Bitcoin to its strategic reserves, the country aims to reduce its dependence on the dollar while attracting global cryptocurrency investors.
2. Hedging against inflation and currency depreciation
Some countries face high inflation and currency depreciation issues; Bitcoin's scarcity (with a cap of 21 million) and decentralized characteristics make it an effective hedging tool. For example, in countries like Argentina and Turkey, inflation rates have remained high in recent years, causing residents and governments to face rapid currency depreciation.
In this context, Bitcoin, as 'digital gold,' is seen as an attractive option that can help these countries reduce losses caused by local currency depreciation through strategic reserves. In fact, some central banks in developing countries have begun to research incorporating cryptocurrencies as part of their international reserves, allowing them to have a store of value that is not affected by traditional monetary policies in the face of local currency depreciation.
3. Promoting digital economy development and attracting foreign investment
Another important motivation for Bitcoin as a strategic reserve is to promote the development of the national digital economy by embracing cryptocurrency. Especially in countries like El Salvador, by legalizing Bitcoin and adding it to strategic reserves, they are trying to attract international cryptocurrency companies, investors, and entrepreneurs to create a blockchain-based digital economy ecosystem.
This practice not only promotes local economic development but may also bring certain tourism revenue and foreign exchange income. El Salvador's President Nayib Bukele explicitly stated that the use of Bitcoin can help the country overcome past economic difficulties and usher in a new era of digital economy. Through this approach, the country hopes to enhance its voice in the international financial market by holding Bitcoin while encouraging the domestic economy's digital transformation.
Future: Opportunities and challenges of strategic reserves
Trump's promise to establish a Bitcoin strategic reserve for the U.S. after taking office seems to be seen as a prelude to Bitcoin's peak. The market is experiencing FOMO, and there is widespread optimism; most signals we have encountered indicate that countries and companies will continue to buy. However, will things really develop this way in the future?
Regarding Bitcoin's strategic reserves, the traditional financial industry is not without negative views. (Wall Street Journal) Senior market columnist James Mackintosh believes that for major economic powers like the U.S., there is little necessity to hold Bitcoin as a strategic reserve. He points out that the stability of the U.S. economy mainly relies on 'government credit' rather than the support of foreign exchange reserves. The high volatility of Bitcoin makes it difficult to serve as a reliable national reserve tool.
The billionaire head of cryptocurrency investment firm Galaxy Digital also holds a cautious attitude. He believes the likelihood of Trump incorporating Bitcoin into the U.S. strategic reserves is not high. Novogratz stated in an interview with Bloomberg on Wednesday, 'I still think that possibility is low.' He explained that although the Republican Party currently controls the Senate, the number of seats is still less than 60, which is not enough to guarantee the smooth passage of this proposal.
The future of Bitcoin is undoubtedly full of uncertainty, with both supporters and opponents having ample reasons to believe in their judgments. For companies and nations, holding Bitcoin may be an attempt to explore the future of finance, but it also means accepting the challenges of high volatility and uncertainty. The fate of Bitcoin depends on market sentiment, policy environments, and technological developments. Perhaps, as Mackintosh said, 'Bitcoin relies more on animal spirits than on economic analysis.' Therefore, in this game of digital assets, who will win in the end remains to be seen.
Regardless, as investors, we need to find a balance between enthusiasm and rationality. In the vast wave of financial transformation, how things will develop in the future remains to be seen.