How to Buy Bitcoin for Your Business
So you’ve decided to buy bitcoin for your business. How do you go about purchasing bitcoin sustainably, in a way that mitigates potential volatility and ensures you won’t dig a hole in your company’s balance sheet?
Thanks to years of dedicated innovation by builders within the bitcoin space, businesses have a lot of options when it comes to buying bitcoin.
How to buy bitcoin for your business
Before making your first purchase, be sure that your business has thoroughly contemplated these questions:
- Why does my business want to buy bitcoin?
- How does my business plan on using bitcoin?
- How much risk can my business tolerate?
- How will I communicate this decision to stakeholders, employees, and customers?
Let’s break down each step.
1. Determine your custody preferences
Your company’s first order of business should be determining how to store bitcoin after purchasing it.
If you merely leave the bitcoin on the exchange you purchased it from, you’ll gain exposure to bitcoin’s price appreciation, but you don’t truly have custody of your company’s bitcoin. In the unfortunate event that the exchange you purchased bitcoin from goes down, say goodbye to the bitcoin.
As a business, you don’t want to wake up to sudden holes in your balance sheet. Bitcoin is the only asset that guarantees you can know for certain that your capital won’t be unexpectedly stolen, debased, or otherwise manipulated. But it comes with some personal responsibility.
When your company takes self-custody of bitcoin, you have two sets of keys: public and private keys. Your public key is a shareable address that enables you or others to send bitcoin to your wallet. The private key is never to be made public—it’s the key to the treasure box, so to speak, and enables the holder to control and move the bitcoin within your wallet.
Like the public key, the private key is a random string of numbers and letters, but to make it readable, recognizable, and memorable, bitcoin improvement proposal (BIP) 39 masks the private key as a mnemonic “seed phrase,” organized as a randomized string of 12 or 24 words. Whoever at your firm is responsible for its bitcoin holdings must ensure that they won’t lose the seed phrase.
To enhance security, users can implement a BIP-39 passphrase, which adds an extra security layer by requiring a user-created word in addition to the seed phrase. This means the seed words alone are not sufficient to access the wallet, and it also means that losing it can lock you out of your bitcoin. If you choose to implement a passphrase, treat it with the same care as your seed phrase.
With any custody setup you choose from below, make sure you copy down the seed phrase (and passphrase) somewhere secure, offline, and untouchable by unwanted entities. A physical sheet of paper can work, however, in the unlikely and unfortunate event of a fire or some other natural disaster, stamping the seed phrase into a sheet of metal (available for purchase at companies like Stamp Seed) ensures more robust security.
Single-signature self custody
Single-signature (singlesig) self custody setups are by far the most common custody method for bitcoin holders. Whether as an individual or as a business, singlesig setups offer a blend of robust security while minimizing potential points of failure.
Since singlesig setups only require one signature to access the bitcoin stored within it, the only point of failure lies with the beholder. If your business loses the wallet’s seed phrase, your business no longer has any bitcoin.
While singlesig is the most effective way to protect from third-party interference, it comes with the added responsibility of keeping the seed phrase safe at all times. It’s still one of the most surefire protection measures you can take for your company’s bitcoin; just be sure to keep that seed phrase safe!
Multi-signature
The difference between singlesig and multi-signature (multisig) setups is implied in the name—a multisig setup requires multiple signatures, rather than one, to access the bitcoin. In a multisig setup, private keys are generated and distributed across different parties or stored in separate, secure locations. To authorize a transaction, a specified number of these keys (like 2 out of 3) must provide their signatures. This setup builds in redundancy—if one key is lost or compromised, the remaining keys can still authorize transactions, ensuring continued access to funds.
For businesses, multi-signature aligns well with corporate governance practices, mirroring traditional financial controls where significant transactions require multiple sign-offs. It also serves as a risk mitigation tool, distributing control among trusted team members or departments to reduce the chances of internal fraud or human error.
While powerful, these kinds of setups also have limitations in flexibility and policy enforcement. In traditional schemes, all keys are treated equally, with the only policy being how many must sign to authorize a transaction. This simplicity works for basic use cases, but for a business, there’s often a need for more robust structures with layered policies, role hierarchies, and contingencies for complex operational needs.
With a layered architecture, businesses can implement a stack of multisig schemes with distinct roles for each key. These layers use time delays and conditional activation, enabling dynamic, policy-driven control over the custody setup. This addresses critical scenarios such as key loss, staff turnover, or emergency access.
Collaborative custody
Similar, but not the same as multisig, a collaborative custody setup expands on traditional multisig by involving an outside third party (like our partners Unchained or Theya) using a 2-of-3 multisig setup. The custodian may control one or two keys, while the client manages the rest. This model reduces the client's burden by delegating some responsibilities to a third party.
However, risks remain: if either the custodian or the client holds two keys, they become a potential single point of failure. Additionally, this setup doesn't simplify the technical challenges of managing private keys or diminish the risk if one party controls two keys.
Bitcoin’s key innovation was the ability to take control of our money without the need for third-party facilitation. But collaborative custody re-integrates third parties into the equation. What gives?
Collaborative custody indeed outsources part of the custodial responsibilities, but that compromise offers an added layer of security and distribution of responsibility. What’s better is that the backup your company chooses doesn’t have to be an opaque bank that you have no choice but to expose your money to. You can choose a professional partner that specializes in collaborative custody, while still having the option to change that partner at your say, not someone else’s.
Ultimately, what bitcoin offers to the world is optionality for how we interact with our money. Prior to bitcoin, central banking created a walled garden of authority over who gets to control our money. Bitcoin breaks those walls down to create a spectrum of choices for people to dial in exactly how much third-party exposure they choose to allow.
2. Create a business bitcoin wallet
By storing your bitcoin on a cold storage device, known as a “hardware wallet,” you can know for certain that the money you store in bitcoin won’t go anywhere.
There are many bitcoin wallet providers to choose from. Sovreign recommends devices like Coinkite’s ColdCard, Foundation Passport, or Blockstream Jade. These devices are established, open-source hardware wallets that offer a variety of features that give you full control over your business’s security preferences. You can use them for singlesig, multisig, or collaborative custody setups.
After choosing your preferred storage device(s), determine who at your business will hold the keys to the bitcoin, and designate a secure location to store the company’s seed phrase.
In the event that your company’s keyholder(s) loses their cold storage device, don’t fret. Again, it is the seed phrase that grants you access to your bitcoin; the device is merely for signing off on transactions. You can simply purchase a new storage device and import the seed phrase to regain access. We can’t stress enough how important it is to keep your seed phrase safe!
3. Choose an exchange to buy bitcoin from
There are countless options out there for exchanges to buy bitcoin from. Sovreign has partnered with a number of trusted exchanges that have a long track record of success and satisfied clients:
Set up a business account
When signing up for a bitcoin exchange as a business, you’ll likely need to provide:
- Business registration documents
- Identity verification for authorized company members
- Business tax ID number (EIN in the US or equivalent in other countries)
- Bank account information for funding and withdrawals
- Proof of business address
- Authorized signatory list
- Source of funds declaration
The necessary documents will vary depending on which exchange you set up with. There may be additional information required that’s not listed here, such as a business operation description and/or expected transaction volume.
4. Buy bitcoin for your business
After choosing an exchange, you’ll want to determine your purchasing strategy to optimize the company for long-term growth.
DCA
One of the most popular methods for individuals, businesses, and even nations to buy bitcoin is by dollar-cost averaging (DCA). When you DCA bitcoin, you spread your buys out over an extended period of time to mitigate bitcoin’s volatility. This way, you gain exposure gradually without the worry of putting all your money in at the top of the market. In the event that bitcoin enters another one of its notorious multi-month downtrends (all four of which have recovered fully), you still have capital available to allocate as the bitcoin price drops, which has the added benefit of netting more bitcoin with each purchase.
If your company is a long-term believer in bitcoin, setting up a DCA strategy is likely your best option for safely building a position. If you’re not certain on how to best approach this strategy, set up a consultation with us to receive a tailored plan for your business.
Lump sum
A more straightforward (albeit more risky) approach to buying bitcoin is to simply lump sum your available capital. If your company is in a position to store away excess capital without needing to touch it for the foreseeable future, conducting a lump sum purchase is the best way to get immediate, substantial exposure to bitcoin. If you’ve developed conviction, are financially secure, and don’t care to spend otherwise better-allocated energy on a meticulous purchasing plan over months or years at a time, a lump sum purchase can give you the peace of mind you need to focus on building up your business.
You can know with confidence that regardless of bitcoin’s short-term price action, in the long term you’re in a strong position to benefit from the increasing purchasing power bitcoin offers to its holders.
The (at the time) longest-standing CEO of a public firm, Michael Saylor, conducted a well-timed lump sum purchase of bitcoin in August 2020—allocating the entirety of MicroStrategy’s cash balance sheet to bitcoin—followed up by a consistent DCA plan, that has since led the company to becoming one of the best-performing equities in the Nasdaq 100.
5. Withdraw the bitcoin to your business wallet
Taking self-custody of the bitcoin your company purchases is the single most important step to take that ensures you enjoy the full range of benefits bitcoin offers to any business. Beyond its price appreciation and subsequent increase in your company’s available purchasing power, taking self-custody of bitcoin gives you direct access to interact with the bitcoin protocol and integrate other bitcoin features into your business. Whether that’s setting up bitcoin payments, offering bitcoin rewards for customers and employees, or any other bitcoin-related venture, you need to hold the real thing, not an IOU, to truly expand and adapt your company to the Bitcoin Business Standard.
To withdraw bitcoin to your wallet, simply copy the “Receive” bitcoin address that your hardware wallet provides, and paste it into your preferred exchange’s “Send” or “Withdraw” interface.
Keep your privacy in mind
For most small businesses, using a new address when sending bitcoin to your wallet is beneficial to maintain relative privacy. If you only use the same bitcoin address for all withdrawals, anyone could search that wallet address on the blockchain and view all of its incoming and outgoing transactions. As a small business, this may not be ideal for your security.
However, there is a flip side to this: clients of other businesses may appreciate the transparency that a company provides by using a single wallet address that they make public for anyone to view. This way, current clients and prospective ones can validate themselves that you’re using bitcoin the way your company intended, adding a new layer of integrity to demonstrate as a business. Within bitcoin-focused companies, such as River, “proof of reserves” is already becoming a de facto standard to ensure that clients know how the businesses they’re interacting with are handling their money.
It all depends on your company’s status and the relationship you wish to have with clients.
Keep your transaction sizing in mind
Additionally, your business needs to consider the size of transactions you send to your wallet. Bitcoin operates using unspent transaction outputs (UTXOs), which necessitates intentional transaction sizing when taking self-custody. With each transaction you make, you must spend a fraction of that transaction on fees that are paid out to bitcoin miners. The cost of this fee varies depending on network activity and logically follows that as bitcoin grows, so too will the fees to spend on transactions using the base layer bitcoin blockchain. This phenomenon has called for scalability innovation, using additional layers (such as Lightning) to mitigate fees while still maintaining the protocol’s core security protections.
All of this to say, you don’t want to send tiny fractions of bitcoin at a time when storing bitcoin on the base layer. With fees currently ranging from under $1 to upwards of $20 during peak activity, you want your transaction size to accommodate so that a large portion of the transaction isn’t lost to fees. If fees are costing $15 and you only want to send $5 worth of bitcoin to your wallet, you’re paying a 75% transaction fee, whereas sending $10,000 worth of bitcoin would only incur a 0.15% fee.
Learn compliance and tax implications
Of course, with any action involving money, you want to ensure that your company is abiding by the compliance and taxation laws within your regional jurisdiction.
If you don’t plan on selling any bitcoin, then you won’t have to worry about incurring capital gains taxes. You can set up bitcoin-backed loans to leverage the increased purchasing power bitcoin provides without having to sell it for fiat currency and incur taxable events.
In most regions of the world, your company is required to report bitcoin holdings as part of its balance sheet. Bitcoin is typically classified as an intangible asset, which means its value must be assessed regularly. If the value of bitcoin drops below your purchase price, you may need to recognize an impairment loss on your financial statements, even if you don’t sell. Conversely, you cannot recognize a gain if bitcoin appreciates unless you sell it.
To ensure compliance, work with a tax professional or financial advisor who is familiar with the intricacies of bitcoin accounting and regional regulations. They can help you establish proper bookkeeping practices, prepare accurate reports, and navigate all of bitcoin’s nuanced complexity.
Additionally, consider using a software solution like Zaprite or Flash that is designed specifically for bitcoin accounting. These tools can simplify the process of tracking your company’s bitcoin transactions, calculate potential tax liabilities, and generate reports to stay compliant with local laws.
Keep your business’s bitcoin purchases protected
Buying bitcoin for your business can feel like a daunting initiative to pursue at first, but with the right help at your side, you can navigate bitcoin with confidence knowing that your purchases won’t impede on your everyday business operations. In fact, over the long term, you’ll find the opposite to be true: bitcoin can open brand new doors for business.
Sovreign specializes in offering best-in-class consultants to help your business navigate bitcoin and determine all the best ways to create a Bitcoin Business Standard for your company. It starts with buying bitcoin for your business, then leaning on experienced professionals to keep the crops watered and watch the fruits of your bitcoin purchases grow.
If you need expert guidance to get started with bitcoin, reach out today, and we’ll set you up with our team of consultants to help you maximize your business’s potential.
