Here's what could really supercharge the bitcoin rally (hint: it's not just Trump's speech)

By Frances Yue

Welcome back to Distributed Ledger. I'm Frances Yue, crypto reporter at MarketWatch.

Bitcoin got a lift as investors grew more bullish about risk assets and a potential Donald Trump victory in November's U.S. presidential election, with the largest cryptocurrency by market capitalization climbing 13.5% over the past seven days.

Now, crypto enthusiasts are looking ahead to Trump's scheduled appearance at the Bitcoin 2024 conference, which will be held in Nashville from July 25 to July 27.

I caught up with Sam Callahan, senior analyst at bitcoin financial service firm Swan Bitcoin, who said Trump's speech, set for July 27, might give the crypto another leg up. He will be paying close attention to whether Trump will mention bitcoin's potential as a treasury reserve asset for companies, which may boost the largest crypto's adoption.

Still, it's important to exercise caution. Crypto has been prone to "sell the news" events in the past, where traders buy a security in the weeks, or months, leading up to a potentially bullish new event, but sell it after the event happens.

Find Frances Yue on X to share your thoughts on bitcoin as a company treasury reserve asset, or this newsletter.

More companies owning bitcoin?

A number of companies this year, including Tokyo-listed investment firm Metaplanet Inc. and Nasdaq-listed medical technology company Semler Scientific, Inc., (SMLR) started adding bitcoin to their treasury reserves. Such moves follow the lead of MicroStrategy Inc., (MSTR) Tesla Inc., (TSLA), Block Inc. (SQ) and other companies already holding the cryptocurrency.

A corporate treasury account is used by a company to preserve cash, fund operations and support growth. If U.S. companies, which held a total of $187 billion cash on hand and in U.S. banks as of March 31, allocate more into bitcoin, it could boost the asset's price significantly.

The estimated total amount of the crypto held by private and public companies globally remains small overall, but went up to about 816,163 bitcoins as of Wednesday from around 667,000 a year ago, according to a tally by BitcoinTreasuries. The total amount of bitcoin hold by global companies account for roughly 3.9% of bitcoin's maximum supply of 21 million coins.

"This trend could be due to bitcoin's growth since 2020, improved regulation, increased acceptance, and recognition as a legitimate investment," said analysts at crypto research firm Kaiko, in a note earlier this week. They also pointed to the approval of spot ETFs in the U.S. earlier this year and continued "promotional campaigns" by major asset managers BlackRock Inc. (BLK) and Fidelity as having increased global public awareness about the crypto industry.

Globally, public companies own a collective 324,446 bitcoins, worth $20.8 billion based on bitcoin's current price, according to BitcoinTreasuries's calculation. For context, technology giant Apple Inc. (AAPL) reported owning $18.2 billion in U.S. Treasurys as of March 30, according to a public filing.

Callahan at Swan Bitcoin said he expects more companies to start adding bitcoin into their balance sheets, as the regulatory environment appears to be getting better. Companies like MicroStrategy saw their shares significantly outperform major stock indexes since it adopted the bitcoin strategy in 2020.

The business-intelligence software company has recorded an over 1,000% cumulative return since Aug. 10, 2020, the day before MicroStrategy announced its first bitcoin purchase. That overshadows the return of bitcoin, which rose over 400% since August, 2020.

Of note, the Financial Accounting Standards Board, or FASB, which sets accounting standards for companies and nonprofits in the U.S., updated its accounting standards for certain crypto assets, such as bitcoin in December last year. The change, which will be effective for fiscal years starting after Dec. 15 this year, could encourage more companies to list bitcoin as a treasury reserve asset, noted Callahan.

FASB's new standards require companies to measure crypto assets at fair value on their balance sheet, with changes in fair value recorded in net income during each reporting period.

That is a major shift from the existing rules, where companies holding crypto have to record them as intangible assets, accounting for them at their original cost. They also must document "impairment charges" for the assets when the crypto's value falls below their initial purchase cost.

On the flip side, when the value of crypto assets rise, beyond the company's purchase price, it only needs to recognize the gain when the assets are sold, instead of during each reporting period.

"With the accounting barriers coming down, it will probably open the door for more corporate adoption of bitcoin in the coming years," Callahan said.

Crypto in a snap

Bitcoin (BTCUSD) was up 11.9% over the past seven days to around $64,247, still 13% away from its all-time high at $73,798 reached in March. Ether (ETHUSD) has risen 10.1 % over the past seven days to around $3,407, according to Dow Jones Market Data.

Must-reads

Coinbase more likely to get SEC action over crypto accounting after regulator dings rival for same practice (MarketWatch)Why the 'Trump trade' is boosting bitcoin, and what's next for the crypto (MarketWatch)BlackRock's Larry Fink embraces crypto, as asset manager's bitcoin ETF is now worth nearly $20 billion (MarketWatch)Ether could jump 90% following ETF approvals, even if the funds lack popularity of bitcoin (MarketWatch)

-Frances Yue

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07-17-24 1556ET

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