The Bitcoin Business Newsletter | A MicroStrategy Case-Study – Part II

Key insight

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We’re continuing last week’s case study by our main writer Adrian Guilleux, focusing on Bitcoin-related risk, purchase strategy, and accounting.

Managing risk and capital liquidity is crucial for successfully implementing the Bitcoin corporate flywheel strategy. Proper risk management involves carefully assessing the company's financial health before implementation and maintaining conservative debt ratios to ensure solvency. It also requires strategically timing bitcoin purchases to mitigate market volatility, diversifying debt holdings to balance risk, and regularly monitoring and adjusting the strategy as needed. Part four of this case study will extensively discuss how Sovreign helps you achieve this corporate flywheel strategy while keeping your risk ultra-low.

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III - Purchase Strategy - The corporate DCA

The new corporate balance sheet dollar cost average ("DCA") program is essentially a traditional DCA strategy applied to a percentage of monthly gross profits or cash equity. While buying bitcoin in lump sums can be beneficial before significant price increases, it often precedes a price drop, increasing risk for the company. The DCA program aims to purchase bitcoin monthly using TWAP (Time-Weighted Average Price) orders and advantageous OTC deals, creating positive liquidity changes and ensuring competitive purchase prices.

A crucial first step in starting the DCA process is to invest 10% or more of your company's cash reserves in bitcoin. This protects your company from the devaluation of US dollar holdings, which can negatively impact your business operations.

By allocating a portion of your monthly gross profits to bitcoin investment on a predetermined, recurring schedule, you avoid the pitfalls of trying to time the market.

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IV - Setting in stone

As discussed in the introduction, Bitcoin is revolutionizing accounting by providing a time-chain history of your most sensitive financial information. Traditionally, each party has been responsible for maintaining their own financial records, which has often led to fraud or errors. Even with double-entry accounting in your books, there was previously no guarantee that the bank or other involved parties viewed the transaction the same way or recorded identical figures. In fact, during an audit, one would need to contact the bank to confirm if the organization truly held the stated amount on a specific date and if they concurred with the recorded figures. As the sophistication of companies developed over double-entry bookkeeping, companies were expected to share their records with outside stakeholders such as investors and lenders. This created the problem of how outsiders could trust the company's books and thus required auditors. Adopting a bitcoin on the balance sheet standard not only provides benefits previously discussed but also implies increased transparency to your stakeholders everywhere in the world.

Entering bitcoin now might seem like a risky play for a seasoned business owner, but could one day become a prerequisite to be able to be publicly listed. Requiring to be transparent to the states you operate from, the communities you deal with, the local providers you buy from, your stakeholders who all have an interest in your business, your suppliers, your customers, and so on, could in the future very well become the norm. So if you don’t do it now, someone else after you will add bitcoin to your company’s balance sheet, simply because it allows for triple-entry accounting. Holding bitcoin on a company's balance sheet enhances the company's ability to trust its own books and verify its clients', suppliers', or lenders' solvency. This approach shifts trust from a mutually agreed link between partners to a decentralized, global collective identity that authenticates the connections between actors. As a result, it significantly improves protection and minimizes the risks of failures, scams, or partnerships with entities lacking the production capacity they claim to have.

Triple-entry accounting enhances the traditional double-entry system by cryptographically sealing transactions involving outside parties through a third entity. This seal is placed alongside the bookkeeping entries of both parties. When a transaction is entered into the blockchain as a third entry, it serves as both a receipt and proof of the transaction. This goes beyond the receipts held by each party in a double-entry system, providing an additional layer of verification and transparency for companies. In a global economy-wide accounting system, a massive amount of administration is eliminated since there's no longer a need to maintain separate local sets of books. The borderless, global, instant ledger brings substantial benefits to accounting, particularly in trade settlement. Previously, there was no guarantee that the person you were dealing with viewed the transaction the same way or recorded identical numbers in their own books. Transactions in a triple-entry system, entered into the blockchain, serve as both a receipt and proof that something occurred between two parties—surpassing the receipts each party holds in a double-entry system. Since these entries are distributed and cryptographically sealed, falsifying or destroying them to conceal activity is practically impossible.

The advantages of a triple-entry system are enormous in terms of reconciliation, transparency, trust and auditing. Sovreign positions itself as an expert in this domain, offering comprehensive guidance to businesses seeking to adopt this approach. Our team of financial analysts and bitcoin specialists provides clients with personalized risk assessments and strategy development. We offer ongoing monitoring of market conditions and strategy performance, with regular reporting and optimization recommendations. Our client's risk tolerance and debt management are under constant scrutiny, ensuring that the bitcoin flywheel strategy is implemented responsibly and effectively—maximizing potential returns while minimizing exposure to undue risk. Moreover, Sovreign remains a pillar of support for bitcoin-adopting corporations. We dedicate our efforts and raison d'être to managing convertible debt agreements and compliance issues, always remaining just five minutes away from addressing your company's needs.

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Top News Stories

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Texas Mayor: 'Bitcoin Mining Revived Rockdale’s Economy' – Bitbo

Rockdale, Texas, saw its economy rebound after Bitcoin mining companies invested over $1 billion, creating jobs and boosting local services.

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National Bank of Bahrain Launches Its First Bitcoin Investment Fund

The National Bank of Bahrain and ARP Digital launched a Bitcoin fund for GCC investors with capped gains and downside protection.

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Supreme Court Allows the US to Sell 69,370 Seized Silk Road Bitcoin

The Supreme Court's decision clears the way for the US to sell 69,370 BTC seized from Silk Road, worth $4.4 billion.

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FTX cleared to repay billions to customers after bankruptcy plan approval

NEW YORK, Oct 7 (Reuters) - FTX received court approval of its bankruptcy plan on Monday, which will allow it to fully repay customers using up to $16.5 billion in assets recovered since the once-leading crypto exchange collapsed.

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Recommended Podcasts & Videos

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#542: The Bitcoin Treasure Strategy Is A Game Changer with Dylan LeClair

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Bitcoin, Metals, and Monetary Premiums

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Chart of the Week

Bitcoins MVRV Z-Score

The MVRV Z-Score uses blockchain analysis to identify periods when Bitcoin is extremely overvalued or undervalued compared to its "fair value."

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“If Bitcoin isn’t the answer, you’re asking the wrong question.”

– Michael Saylor

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