Step 1 for Companies: Buy Bitcoin; Step 2: Issue Their Own Token – Arca

Sead Fadilpašić
Last updated: | 3 min read
Source: Adobe/schapinskaja

After they’ve bought some bitcoin (BTC), companies will want to issue their very own tokens, and this may be coming sooner than we think, according to Jeff Dorman, Chief Investment Officer at a US-based blockchain- and crypto-focused investment advisor Arca.

“Once companies start purchasing bitcoin, it’s only a matter of time before they start issuing their own tokens too,” said Dorman in a December 7 blog post. “Digital assets issued by companies are proving to be the greatest capital formation and customer bootstrapping tool ever created.”

And we’re closer to this reality than one may think, he said, giving two of the recent examples:

  • Airbnb’s filing for their upcoming initial public offering stated that the company’s success will also depend on their ability to adapt to emerging technologies “such as tokenization, cryptocurrencies, new authentication technologies,” etc;
  • venture capital firm Benchmark-backed, community-based app Supergreat is rewarding their reviewers by paying them in “supercoins,” creating a cycle of engagement – but these can’t be moved out of the app ecosystem.

Neither Airbnb nor Supergreat don’t technically need a blockchain to have their tokens, but having digital assets instead of a coin that functions only within a specific ecosystem, would make the asset fungible with other assets outside that ecosystem, thus making them “more valuable, more discoverable, and would lead to further growth,” argued Dorman. He added that “Loyalty points work. Liquid digital asset “pass-thru” tokens which function as both loyalty points and quasi-equity work better.”

Besides corporations, university endowments are already investing in the world’s number one crypto, continued the CIO, “so perhaps the first University token is close to coming to market too.” According to him, parents may decide to purchase these coins for future educational credits, and these tokens, if the school is in high demand, could then be traded on the open market should the child decide not to attend that specific university.

Dorman concluded that “both companies and endowments are prime candidates to give investors direct exposure to their future liabilities rather than being forced to invest in areas they don’t understand or care about as a proxy.”

The post quotes Merrill Lynch financial advisor as telling Arca that “this may be how people think about “saving” for the future.” What financial advisors do “is bridge the gap between assets/cash flow now, to future liabilities (house and retirement needs), by investing in equity and fixed income which in theory should go up over a specific time period. But what if we knew the exact cost now for the future liability? If Health Care could be paid for up front in the form of a digital asset, or vacations, or housing expenses? This could change the formula,” the advisor was quoted as saying, with Dorman adding that it’s precisely digital assets that are changing this formula.

Meanwhile, some companies are already completing this first step – purchasing bitcoin. Dorman hence touched on the argument that “bitcoin may be the perfect corporate treasury asset, for now.” He posed a question whether it makes sense to hold bitcoin as a cash substitute, stating that several companies, most prominently Square and Microstrategy “seem to think so,” given their recent investments in BTC. But why hold cash then at all, particularly in this “relic” that is the current market infrastructure?

“Any company with a huge cash war chest is inefficiently using that capital, and is certainly primed for activism,” said Dorman, but “March 2020 [market crash] taught us that maybe keeping a large “rainy day” fund is warranted instead of buying back stock and waiting for government bailouts.”

Perhaps, he argued, buying bitcoin right now “really is the best solution to this conundrum” as it “increases transaction flexibility, keeps pace with inflation, keeps activist investors at bay, and provides a cushion should there be a during the next crisis,” while there may be some “more appropriate tokens for treasury management purposes in the future depending on the goals of the company.”

At the time of writing (UTC 15:20), BTC dropped 2% in a day and in a week to USD 18,869. It appreciated 24% in a month and 151% in a year.
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