Microsoft recently advised its shareholders to vote against a proposal calling for a portion of its assets to be allocated to Bitcoin. This proposal, brought forward by the National Center for Public Policy Research (NCPPR), suggested Microsoft invest at least 1% of its holdings in Bitcoin to hedge against inflation. However, Microsoft expressed doubts, highlighting Bitcoin’s volatility and emphasizing its commitment to low-risk investments.

Why Bitcoin? NCPPR’s Proposal to Hedge Against Inflation

NCPPR’s recommendation to invest in Bitcoin stems from the digital currency’s historical resilience against inflation and its strong performance compared to traditional financial assets. The conservative think tank argues that Bitcoin has shown potential as a “store of value,” asserting that it has outperformed corporate bonds and government securities over the past year and beyond. According to NCPPR, Bitcoin saw 94% gains over the past year and a 411% increase over five years, figures they believe justify a corporate investment in the digital asset.

The think tank sees Bitcoin as a means for corporations to preserve wealth amid inflationary pressures and economic uncertainty. As of March 2024, Microsoft’s assets primarily include U.S. government securities and corporate bonds, totaling around $484 billion. NCPPR claims these assets have not consistently kept pace with inflation, suggesting that companies like Microsoft should diversify with assets that hold strong appreciation potential, even if they’re more volatile.

“Corporations should – and perhaps have a fiduciary duty to – consider diversifying their balance sheets with assets that appreciate more than bonds, even if those assets are more volatile short-term,” NCPPR argued in the proposal.

Microsoft’s Response: Bitcoin’s Volatility is Too High

Microsoft’s response came in a filing with the U.S. Securities and Exchange Commission (SEC), recommending shareholders vote against the Bitcoin proposal. The tech giant noted that it had already considered Bitcoin and other cryptocurrencies as possible investments but concluded that they are currently too volatile and lack the predictability Microsoft requires.

“As the proposal itself notes, volatility is a factor to consider in evaluating cryptocurrency investments for corporate treasury applications that require stable and predictable investments to ensure liquidity and operational funding,” Microsoft stated in its filing. Microsoft highlighted that its treasury strategy favors low-risk, liquid investments that secure its long-term stability and growth, which Bitcoin’s price fluctuations could jeopardize.

Rising Corporate Interest in Bitcoin, But with Caution

NCPPR’s Bitcoin proposal comes at a time when several large corporations have been exploring Bitcoin as part of their treasury holdings. Data from CoinGlass shows that over 60 companies have adopted Bitcoin in their portfolios as a hedge against market unpredictability and inflation. Tesla, MicroStrategy, and Block (formerly Square) are among the companies with Bitcoin on their balance sheets. MicroStrategy, led by CEO Michael Saylor, has invested over $4 billion into Bitcoin, promoting it as a “superior store of value” and one of the most resilient alternatives to fiat currency.

However, Microsoft’s concerns reflect a caution shared by many corporations. For traditional firms with extensive financial obligations, Bitcoin’s high volatility makes it a less viable option for asset preservation. While Bitcoin offers potential for growth, its price has historically swung dramatically, creating risks for firms needing to maintain steady cash flows.

Treasury Management and Microsoft’s Approach to Financial Stability

Microsoft maintains a highly structured approach to treasury management, focusing on stable, predictable investments that align with its broader financial objectives. The company has long been committed to minimizing risk, ensuring that its financial assets can support its operational needs and protect shareholder interests. From Microsoft’s perspective, introducing a highly volatile asset like Bitcoin could compromise this strategy, even if it provides potential for high returns.

The NCPPR proposal also called on Microsoft to conduct an in-depth analysis of Bitcoin as a corporate asset, but Microsoft’s management deemed this unnecessary. The company stated that it had already assessed Bitcoin and found it unsuitable for its current investment framework, given its volatility.

Other Shareholder Proposals on AI, Ethics, and Data Responsibility

Beyond Bitcoin, Microsoft is also facing several shareholder proposals that raise ethical and strategic questions across its business practices. Among these are calls for greater transparency in Microsoft’s use of artificial intelligence and a comprehensive assessment of its impacts on various fields, including data ethics, AI-driven misinformation, and human rights in high-conflict regions. The company has opposed these proposals as well, asserting that it maintains rigorous standards in its AI and data policies and is actively working to uphold ethical standards in these areas.

Corporate Treasury Debate: Bitcoin’s Role Remains Uncertain

Microsoft’s rejection of the Bitcoin proposal underscores a conservative approach that contrasts sharply with the more aggressive strategies of companies like MicroStrategy. For companies that prioritize predictable, low-risk assets, Bitcoin’s price volatility presents a significant barrier to widespread adoption. While early adopters of Bitcoin in the corporate space view it as a hedge against economic instability, others like Microsoft prioritize financial stability and liquidity over potential gains.

The upcoming shareholder meeting on December 10 could provide more insights into corporate sentiment around Bitcoin. Should shareholders align with Microsoft’s recommendation, it may signal a more cautious corporate stance on digital assets. Conversely, if shareholder support for Bitcoin grows, it could spur further discussion about Bitcoin’s place in traditional finance.

With economic pressures and inflation concerns growing globally, the conversation surrounding Bitcoin as a corporate asset is far from over. While some may argue that Bitcoin offers protection against inflation, firms like Microsoft remain cautious, reflecting the broader uncertainty around the asset class’s future within corporate finance.