The Case for Holding Bitcoin on Your Balance Sheet: Historic Performance vs. Inflation
The Case for Holding Bitcoin on Your Balance Sheet: Historic Performance vs. Inflation (2019–2024)
In recent years, Bitcoin has emerged as a compelling alternative to traditional financial assets for businesses looking to diversify their treasury strategies and protect capital from inflation. Allocating even a small portion—around 10%—of a company’s treasury into Bitcoin could safeguard cash reserves from rising inflation while offering the potential for significant long-term returns.
Inflation Rates in Australia: A 5-Year Review (2019–2024)
From 2019 to 2024, Australia experienced notable inflationary pressures, exacerbated by global economic disruptions. Over this period, inflation ranged from a low of 1.3% to highs exceeding 6%, particularly spiking in 2022 as pandemic-related supply chain issues and monetary policy responses fueled inflation. The average inflation rate over these five years was approximately 3.25%, significantly eroding the purchasing power of cash reserves.
As inflation continues to chip away at the value of fiat currency, businesses relying solely on cash holdings may face diminishing purchasing power, making inflation hedging strategies crucial for financial stability.
Bitcoin's Performance: Outpacing Inflation (2019–2024)
While inflation eroded fiat currency, Bitcoin delivered remarkable returns over the same period. From 2019 to 2024, Bitcoin achieved a cumulative return of approximately 294%, vastly outstripping inflation. Despite Bitcoin’s well-known volatility, holding the asset over a 4–5 year period has historically mitigated short-term price swings and delivered superior returns.
For example, a business that purchased Bitcoin in early 2019 would have seen the value of that investment multiply by nearly three times by 2024, even when accounting for periods of volatility. This performance showcases Bitcoin’s potential as an inflation-resistant store of value over longer time horizons.
Bitcoin vs. Traditional Inflation Hedges
When comparing Bitcoin to traditional inflation hedges like gold, the difference is stark. Over the past five years, gold delivered average annual returns of approximately 7%. While gold remains a steady and reliable hedge against inflation, Bitcoin's annual returns have far exceeded this, averaging over 155% during the same period.
Although Bitcoin's price volatility can be intimidating in the short term, its long-term performance has consistently outpaced more traditional assets like gold, making it an attractive alternative for businesses willing to adopt a longer-term view.
The Importance of Holding Bitcoin for at Least 4 Years
Bitcoin's historical price trends reveal significant price swings within short periods. However, Bitcoin has demonstrated its ability to recover from downturns and achieve new all-time highs over longer timeframes. For businesses considering adding Bitcoin to their balance sheet, it’s important to adopt a long-term perspective—ideally holding the asset for at least 4–5 years to ride out volatility and capture maximum potential returns.
How a 10% Allocation Could Have Performed
Let’s consider the example of a business allocating 10% of its treasury into Bitcoin in 2019, while keeping the remaining 90% in cash. By October 2024, the value of the Bitcoin portion would have grown by approximately 294%, significantly boosting the overall performance of the company’s reserves, even as the cash portion was eroded by inflation.
For instance, if a company had a $1 million treasury and allocated $100,000 (10%) to Bitcoin, that portion alone would have grown to nearly $394,000 by 2024. Meanwhile, the purchasing power of the remaining $900,000 held in cash would have been reduced due to inflation. This highlights how even a small allocation to Bitcoin can dramatically improve treasury performance and offset inflationary losses.
Visualizing the Impact of Bitcoin on Treasury Performance
A graph comparing the performance of a portfolio with a 10% Bitcoin allocation versus one without reveals the dramatic difference Bitcoin can make. While the cash reserves gradually erode in value due to inflation, the Bitcoin portion grows substantially, offsetting the inflationary losses and enhancing overall returns.
This comparison underscores the power of Bitcoin as both an inflation hedge and a growth asset. Holding Bitcoin for at least four years reduces the impact of short-term volatility and allows businesses to take advantage of its impressive long-term performance.
Conclusion: Bitcoin as a Strategic Asset for Business Treasuries
As inflation continues to rise, businesses need to consider alternative strategies to protect their capital. Bitcoin, with its deflationary characteristics and historic outperformance of traditional assets, presents a strong case as part of a modern corporate treasury. By allocating even a small portion of your company’s cash reserves to Bitcoin, you can mitigate the impact of inflation and potentially realize significant returns over time.
If you're interested in exploring how Bitcoin can enhance your company’s financial strategy, contact Bitcoin on Balance to learn more about integrating Bitcoin into your treasury.