Individual businesses may consider retaining digital assets as part of their strategy for a variety of reasons, including:
Companies with excess cash reserves may want to explore owning digital assets such as Bitcoin as a hedge against inflation. Because of scarcity and supply/demand dynamics, Bitcoin's purchasing value has historically increased over time.
Fiat currency (GBP, USD, EUR) historically devalues over time for a variety of causes, the most common of which is central bank money printing, which raises the amount of fiat currency in circulation. The supply of fiat currency grows with time, reducing the currency's purchasing power.
Holding a portion of your reserves in digital assets can provide a hedge against inflation of fiat currencies.
Businesses that import goods or services from international clients will suffer swings in fiat currency prices. If the pound falls in value versus the euro, it will become more expensive to import goods from the Eurozone, eroding firm profit margins if the cost is not passed on to the customer.
Businesses that export goods or services to other nations may likewise encounter challenges with fluctuating fiat currency prices. If the GBP rises in value versus another fiat currency, the cost of exporting the product to an overseas end consumer rises. Cost increases may result in fewer sales for that company, severely lowering revenue.
Businesses that are exposed to fiat currency price fluctuations, can now hedge against inflation using several stablecoins, USDT, USDC and also using Bitcoin.
Businesses that are vulnerable to central bank monetary policy (interest rates) are hedging against inflation by investing in digital assets.
Property developers and real estate agents, for example, suffer when the central bank raises interest rates, putting downward pressure on the property market. Investors and clients are increasingly hesitant to borrow cash as interest rates rise, owing to the increase in financing expenses. Companies in the real estate industry are investing in digital assets as part of their long-term strategy and as a hedge against inflation.
If the housing market cools, Bitcoin provides a buffer against economic uncertainty while also offering some upside potential. Bitcoin currently has an annualized return of 145% per year.
How does Bitcoin hedge against inflation?
Both of the first two scenarios are on the assumption that fiat currency will fluctuate, but ultimately devalue over time, as it historically does. Business owners who are directly impacted by fiat currency price fluctuation are well aware of currency devaluation.
Bitcoin first went live in January 2009, and over the past 14 years, Bitcoin's purchasing power has increased, with the value moving from 0 to more than $41,000 USD today, with previous all-time highs above $65,000.
On the other hand, the GBP has continued to devalue, with the purchasing power sliding by more than 50% in that same timeframe. Here is a live example from the Bank of England website:
Goods and services costing £10,000 in 2009, would cost more than £15,000 today. A 50% increase in the price of goods and services in only 14 years. This suggests that the GBP’s purchasing power has decreased by 50% since 2009.
Fiat currency devaluation will continue, as it always has done…
Bitcoin and digital assets provide a hedge against this scenario, which has played over and over again throughout time.
There is a misconception that only companies working in the digital asset space can hold cryptocurrency as part of their strategy. This is incorrect, ICONOMI is working with business owners from a variety of sectors; property, finance, hospitality, retail, import/export and technology companies. ICONOMI provides business accounts to business owners who require access to cryptocurrency.
If you would like more information on the ICONOMI digital asset business solutions, you can download more information below: