MicroStrategy, Square, and Tesla added bitcoin holdings to their balance sheets in an unprecedented shift of corporate treasuries moving into the crypto capital markets in the last few months.
As corporates and financial institutions are starting to embrace cryptoassets on the back of the OCC guidance that allows US banks to custody and use stablecoins, it will not be long before we see further convergence of traditional finance and crypto finance.
What will that look like? In this blog post, we will explore the next two waves of crypto adoption among corporate treasuries.
The First Wave: Corporates Are Going Crypto
When MicroStrategy CEO, Michael Saylor, announced that his technology company had bought $250 million in bitcoin as cash reserves in August 2020, many in the traditional financial markets were surprised by this move.
Jack Dorsey followed suit and bought $50 million worth of bitcoin for Square’s balance sheet in October 2020, suggesting that this could become a new trend.
Now that Elon Musk has put $1.5 billion in bitcoin onto Tesla’s balance sheet, it has become evident that the crypto capital markets are no longer a playground for retail investors and high-net-worth individuals. Instead, they have become a legitimate part of the global financial markets.
Even BlackRock has started to “dabble in bitcoin,” according to its CIO, Rick Rieder, while numerous other asset managers are also actively exploring digital assets.
It will be only a matter of time before more publicly-traded companies and financial institutions will venture further into the crypto capital markets on the hunt for yield and above-average returns.
The Second Wave: A Move Into the Crypto Interest Markets
Holding bitcoin as cash reserves or investing in the digital currency to diversify an investment portfolio is only the beginning of the convergence of traditional finance and crypto finance.
The next step will be a move into dollar stablecoins as an on-ramp to the crypto interest markets.
Dollar stablecoins, such as USD Coin (USDC), enable treasury departments and financial institutions to tap into the yield-generation opportunities found in DeFi and CeFi that typically provide higher yields than traditional fixed income securities.
DeFi stands for decentralized finance and is a sub-sector of the crypto capital markets where autonomous blockchain-powered protocols replace traditional, centralized financial services, such as borrowing, lending, and trading. For example, a business in Argentina could convert pesos into USDC and then place the stablecoins in a decentralized money markets protocol to earn yield on their digital dollar holdings.
Alternatively, corporations, fintechs, and financial institutions could adopt stablecoins and place them in CeFi yield products, such as Circle’s upcoming Digital Dollar High Yield Account. CeFi stands for centralized finance and is the digital asset equivalent of traditional lending products, operated by a single, trusted entity.
In light of the above-average yield found in the crypto capital markets (due to high borrowing demand), it would make sense for treasuries and institutions to allocate capital into the crypto interest markets to earn yield on idle capital or to diversify their fixed income investment portfolios.
The Third Wave: Dollar Stablecoins for Treasury Management and Payments
Once corporations and financial institutions have become comfortable with converting “physical” dollars into digital dollars to explore yield-earning opportunities in the CeFi and DeFi markets, it will likely only be a matter of time before widespread adoption of dollar stablecoins will occur.
In combination with Circle’s product suite, dollar stablecoins, like USDC, enable businesses and financial institutions to:
- make near-instant global payments;
- execute mass payouts at minimal cost;
- hold digital dollars regardless of their location;
- and process programmatic, multi-dimensional value transfers with ease.
Treasuries can digitize a share of their idle working capital into dollar stablecoins and place the funds into yield products to earn above-average yields.
Additionally, they can use stablecoins to process multi-directional internal and external payments at a fraction of the cost of traditional payment rails.
Moreover, international businesses that want access to US dollars can seamlessly convert their local currency cash reserves into dollar stablecoins and then use their digital dollars for B2B payments, to process payouts or to hold them as reserves.
After bitcoin adoption, dollar stablecoins adoption is poised to be next. Stablecoins can act as a secure on-ramp into the broader crypto markets and, perhaps more importantly, provide a faster and more efficient way to accept and make payments in the digital age.
Learn more about Circle Accounts and they can help your treasury operations.