WHY ARE CORPORATE TREASURERS EXPLORING STABLECOINS & BITCOIN?

Fifth Era/Blockchain Coinvestors Newsletter

Vol. 3, No. 11, June 2021

Ever since working with Bank of America on their global payment solutions (GPS) business unit in the mid 1990's as consulting partners we have understood that the role of corporate treasurer in a multinational corporation is not an easy one. Furthermore, traditional approaches to managing the balance sheet and cash management of a company operating across countries, business units, and product divisions raises complexities that make global payments and treasury management important and challenging.

How Does It Work Today?

A few observations illustrate this complexity:

Sophisticated corporate treasurers understand that balance sheet management requires multiple and parallel strategies. This includes long term, mid term and short term investment horizons as well as working capital management which has to be attuned to the needs of each business unit and product group in each country of operation. Since global market conditions can be volatile, and global supply chains are open to sudden and unexpected disruptions, cash management is also a critical and complex business decision.

When corporate treasuries have large excess cash flows to manage, the movement of money around the corporation can become very complex and costly as well. Operating in multiple geographies implies exposure to numerous fiat currencies, as well as the need to bring money back and forth to operating units that may go from surplus to deficit very rapidly. Leaving emergency stocks of cash in every geography and operating unit is not an efficient approach - leaving pockets of capital stranded and in the current low or even negative interest rate environment is potentially costly too.

As a result, very sophisticated corporate treasurers have to manage working capital in a segmented way: by geography, by business unit, and even by emergency risk band (eg. what short term cash might be required under different levels of negative business scenario).

What is Changing Now?

To summarize, in the context of a multinational balance sheet, cash management is costly, slow, and very complex. A lot of money, time, and effort is absorbed by the reality that international financial systems have not kept up with the businesses of multinational companies in a digital world. Up until recently, there has been little true innovation against this challenge. Much of the infrastructure, and most of the conceptual approaches to the multinational corporate treasury challenge were established in the 1980's and 1990's. The largest banks continue to rely upon legacy infrastructure including, for example, the Swift payments network and dollarization in most cases.

This is beginning to change as stablecoins and of course bitcoin have opened up alternative possibilities. Some examples:

  1. Real time, low cost international remittances are now under consideration both from new private sources such as Ripple/XRP, from pivoting traditional networks like MasterCard, Visa, and UnionPay who have announced their intent to build digital stablecoins and enable the movement of bitcoin and other crypto assets across their networks, and sovereign governments who have also begun to explore the rollout of central bank digital currencies.

  2. On the latter front, much has been written about how the Chinese digital yuan will be used within China for domestic cash displacement, and the Western press has been full of stories of how it may also be used to monitor and even censor the populace if their spending patterns do not conform to government preferences. Less has been written about the use of the digital yuan across the Chinese sphere of influence including the belt and road initiative. However, when China is conducting international trade around the world, why not de-dollarize transactions with a zero cost, real time digital yuan and on-us netting of transactions?

  3. Meanwhile, rather than wait, some large corporate treasuries have already begun to use bitcoin on the balance sheet, and are exploring how stablecoins can work to simplify their international payment activities. In the US, Microstrategy and Tesla have stolen the limelight by announcing large bitcoin purchases, but they are far from alone. We know of a large number of the largest companies in the world who have exploratory teams looking into this topic.

Change is coming fast now.

It Can't, Won't, Shouldn't Work

At the same time, the popular press have begun to tell the narrative in another, and overly simplistic way. Not understanding the complexity of the issue, they have simplified it down to 'Bitcoin on the Balance Sheet' and have begun to publish articles about how volatility, regulatory uncertainty, and energy usage should rule out a corporate treasurer from considering this option.

On the first objection, we will simplify it down to the following. Yes, volatility matters, but only when you have to sell. Very large companies, with very large balance sheets, almost by definition have portions of their assets that never get sold. We would argue that for some multinational corporations Bitcoin is the best possible base layer in a sophisticated multi-tier cash management strategy since you almost never sell the base layer in practice and the returns have been excellent almost every year since inception.

On regulatory uncertainty, we see this as a boon, not a barrier to exploration of digital payment solutions. Just as the confusion around the matter of taxation of Internet electronic commerce transactions allowed the most innovative multinationals to move ahead with their activities, so the current regulatory grey zone around new digital monies and assets enables the most sophisticated to move forward. It is the less sophisticated corporate treasurer who in practice gets chilled by regulatory uncertainty.

We will address energy usage in a future newsletter since we are concerned greatly about that topic.

In short, we are seeing large multinationals moving ahead with initiatives to both leverage stablecoins in their businesses as well as make their first additions of bitcoin to their balance sheets.

We expect many more announcements this year and next along these lines.

Conclusions

We believe stablecoins are coming fast now, and will be ubiquitous once the traditional payment networks roll them out as early as 2022. Each of MasterCard, Visa, and UnionPay have initiatives underway as do the largest banks providing global payment solutions.

Sophisticated corporate treasurers managing the balance sheets of the world's largest multinationals already know that bitcoin has a place in their overall strategy - however, it is a question of matching the return and volatility profile of bitcoin, to the different investment and working capital decisions that they need to make in their respective businesses.

A great corporate treasurer understands that when you have one of the world's highest returning assets which is also showing high volatility, you need to analyse how to fit it in. Throwing out the baby with the bathwater never makes sense.

Thank you for reading.

Alison Davis
Matthew C. Le Merle

ABOUT BLOCKCHAIN COINVESTORS

Since 2014 our goals have been to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and to capture superior returns from investing in the leading blockchain venture partnerships. The strategy is now entering its 8th year, and so far we are investors in 25 pure-play blockchain venture funds in the Americas, Asia and Europe and in a combined portfolio of more than 300+ blockchain and crypto projects including 30+ blockchain unicorns. Simply put, our funds, SPVs and syndicates represent the best way to invest in blockchain businesses.

FUND PERFORMANCE

Blockchain Coinvestors Funds are continuing to generate strong returns. To date, over 80% of the funds we are invested in are performing as top quartile funds against the Cambridge Associates benchmark. This remarkable performance results from powerful tailwinds driving the world towards a future in which digital monies and digital assets are ubiquitous and the businesses and projects providing blockchain and crypto products, services, and infrastructure benefit disproportionately.

BLOCKCHAIN COINVESTORS FUNDS

Blockchain Coinvestors’ goals are to provide broad coverage of the emerging unicorns and fastest growth blockchain companies and to capture superior returns from investing in the leading blockchain venture partnerships:

  • Fund III is open only to investors who meet the Qualified Purchaser definition with a minimum subscription of $250,000.

    • A “qualified purchaser” is an individual or a family-owned business that owns $5 million or more in investments. The term “investments” shouldn't include a primary residence or any property used for business.

  • Fund III Parallel is open to investors who meet the Qualified Client definition with a minimum subscription level of $250,000 at the discretion of the Manager. Please contact ir@blockchaincoinvestors.com if the minimum is of concern.

    • Currently, an individual or entity is a qualified client if he, she, or it: (i) has a net worth of $2,100,000 prior to investment in the fund (excluding the value of his or her primary residence).

While the two funds are substantially the same, there may be some funds and investments that are only available in the Qualified Purchaser vehicle. Blockchain Coinvestors funds can take investments via IRAs. We support several providers, including AlgoIRA, Kingdom Trust, Millennium Trust Company and Pacific Premier Trust Company (Pensco).

Please visit the Blockchain Coinvestors website to learn more about our offerings. You can also reach our Investor Relations team directly at ir@blockchaincoinvestors.com.

BLOCKCHAIN COINVESTORS SWISS

We are excited to announce that Blockchain Coinvestors Funds are now available through Swiss certificates for those of our non-US investors who prefer this approach. The underlying fund is the same, however, our Zurich based team at Blockchain Coinvestors Swiss, who will introduce in future weeks, can provide detailed information regarding this investment option. Email us at mlemerle@fifthera.com to learn more.

LINQTO
'Private Investing Made Simple'

While our funds are only available to Accredited Investors who are also Qualified Clients we believe in the democratization of investment access to all investors and look forward to that day. In the interim, we have partnered with Linqto which is an easy to use Mobile and Web app that makes it exceptionally easy to invest into attractive opportunities. The provide access to Accredited not Qualified Client investors as well as much lower minimums. Go to Linqto.com or download the app from your App store to use this approach.

BLOCKCHAIN COINVESTORS ANGELLIST SYNDICATE

Continuing the theme of the democratization of investing, we have a rapidly growing Blockchain Coinvestors syndicate on AngelList providing access to selected coinvestments. Please join us and our partner Lou Kerner on AngelList.

REGISTER NOW FOR UPCOMING WEBINARS AND CALLS

Our investment team hosts bi-monthly webinars and calls to help educate our community about the Fifth Era, fintech, blockchain and crypto. We discuss important trends, tailwinds and investment themes including what we have learned and how we are using our knowledge to inform our own investment thesis and actions. Below is a list of upcoming webinars for which you can register by clicking the links:


Blockchain Coinvestors Fund III First Closing

- June 7th, 7:00am PST

- June 7th, 12:00pm PST

Options for Investing in Blockchain & Crypto

- June 28th, 7:00am PST

- June 28th, 12:00pm PST

Meet the Blockchain Unicorns - Mid-Year Update

- July 12th, 7:00am PST

- July 12th, 12:00pm PST


Recordings of past webinars and calls can be found at www.fifthera.com/webinars.

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