$100M Bitcoin-backed loan could bring new player to corporate treasuries.
But in the realm of corporate finance, it is the English term that now seems a prisoner of its own lack of creativity as Japanese firm Metaplanet, which quick growing is challenging its American cousin fast and furious for initiative? They just took out a $100 million loan backed by Bitcoin to buy more Bitcoin, fund their operations and (blow your mind) buy company stock with it. Not only are you betting on a specific project, but it’s the concept of using Bitcoin as a means of expansion with your investment being used as collateral for growth without selling stock or giving up control. Metaplanet had already secured a larger $500 million line of credit in Bitcoin before unveiling its most recent loan at the end of October.
The idea is simple and shameless, Take out loans by putting up Bitcoin as collateral, then use that money to buy more Bitcoin to grow your business without having to play nicely with the stock market. While shares tumble or plateau, the business goes on. Typically, a corporation makes money by selling shares or securing a loan from a bank. It’s just that selling is no good for existing investors if the company’s current market value isn’t very high. So, rather than lending more shares and diluting its investors, Metaplanet borrowed money against the Bitcoin in its portfolio. “If you are sitting on reserves of Bitcoin and have the ability to financially borrow against it, that is an excellent way to sit out walls while staying engaged in the market,” Hall said. It may start to sound appealing to other companies that are holding Bitcoin. Rather than sit there in a virtual wallet, the BTC can actually be used to participate in the real world economy.
Nothing comes without risk. The price of Bitcoin could crash, undermining the value of this loan may skyrocket and trigger margin calls. If dozens of companies were to do that at once, a large drop might be dampened by forced selling but not prevented. Interest rates are another risk. The cost of holding the loan rises with borrowing expense. It is the cost of doing business and companies should weigh it against the lest they could lose for Bitcoin. Why This Can Change the Corporations’ Strategy This is not about cashing out crypto this is an entirely new business strategy for firms. Treasuries might take out loans against their Bitcoin holdings to boost purchases.
It’s a melding of old-style money and cutting-edge digital assets. And if Metaplanet makes it clear that it does work, there will be other companies mimicking it on a repeatable basis. In a few years, Bitcoin will be one of the normal methods that you use to make payments, and receive payments; or as an investment vehicle, speaking of it in the same terms as bond or real estate.
Final Thoughts: Metaplanet will trigger a new corporate finance legend The $100 million Bitcoin-based loan from Metaplanet may be the beginning of a new corporate finance hero tale. It demonstrates that Bitcoin is not solely an inanimate resource that companies can loan, invest and be flexible with while the money runs dry. Perhaps this will be the next iteration of Bitcoin-accepting treasuries all-inclusive.
