Microsoft recently urged its shareholders to reject a proposal that suggested allocating a portion of its assets to Bitcoin. The proposal, presented by the National Center for Public Policy Research (NCPPR), advocated for Microsoft to invest at least 1% of its holdings in Bitcoin as a hedge against inflation. However, Microsoft expressed skepticism due to Bitcoin’s volatility and its preference for low-risk investments.
The NCPPR’s proposal to invest in Bitcoin is based on the digital currency’s historical ability to withstand inflation and its strong performance compared to traditional financial assets. The conservative think tank argues that Bitcoin has proven to be a reliable “store of value,” surpassing corporate bonds and government securities in terms of returns over the past year and beyond. According to the NCPPR, Bitcoin has experienced a 94% increase in value over the past year and a staggering 411% increase over the past five years, figures they believe justify corporate investment in the digital asset.
The think tank sees Bitcoin as a means for corporations to preserve their wealth amid inflationary pressures and economic uncertainty. As of March 2024, Microsoft’s assets primarily consist of U.S. government securities and corporate bonds, totaling around $484 billion. The NCPPR claims that these assets have not consistently kept up with inflation and suggests that companies like Microsoft should diversify with assets that have strong appreciation potential, even if they are 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 in the short term,” argued the NCPPR in their proposal.
Microsoft responded to the Bitcoin proposal in a filing with the U.S. Securities and Exchange Commission (SEC), advising shareholders to vote against it. The tech giant stated that it had already considered Bitcoin and other cryptocurrencies as potential investments but concluded that they are currently too volatile and lack the predictability that Microsoft requires.
“As the proposal itself acknowledges, volatility is a factor to consider when evaluating cryptocurrency investments for corporate treasury applications that require stable and predictable investments to ensure liquidity and operational funding,” stated Microsoft in its filing. The company emphasized that its treasury strategy favors low-risk, liquid investments that secure its long-term stability and growth, which could be jeopardized by Bitcoin’s price fluctuations.
Although several large corporations have begun exploring Bitcoin as part of their treasury holdings, Microsoft’s concerns reflect a cautious approach shared by many. For traditional firms with significant 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 experienced drastic swings, posing risks for firms that need to maintain stable cash flows.
Microsoft maintains a highly structured approach to treasury management, focusing on stable and predictable investments that align with its broader financial objectives. The company has long been committed to minimizing risk and ensuring that its financial assets can support its operational needs while protecting shareholder interests. From Microsoft’s perspective, introducing a highly volatile asset like Bitcoin could compromise this strategy, even if it offers the potential for high returns.
The NCPPR’s proposal also called for Microsoft to conduct a thorough analysis of Bitcoin as a corporate asset, but Microsoft’s management deemed this unnecessary. The company stated that it had already evaluated Bitcoin and found it unsuitable for its current investment framework due to its volatility.
In addition to the Bitcoin proposal, Microsoft is also facing other shareholder proposals that raise ethical and strategic questions regarding its business practices. These include demands for greater transparency in Microsoft’s use of artificial intelligence and a comprehensive assessment of its impact on various fields, such as data ethics, AI-driven misinformation, and human rights in high-conflict regions. The company has opposed these proposals as well, asserting that it upholds rigorous standards in its AI and data policies and actively works to maintain ethical standards in these areas.
Microsoft’s rejection of the Bitcoin proposal highlights a conservative approach that contrasts 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, companies like Microsoft prioritize financial stability and liquidity over potential gains.
The upcoming shareholder meeting on December 10 will provide more insights into corporate sentiment regarding Bitcoin. If shareholders align with Microsoft’s recommendation, it may indicate a more cautious corporate stance on digital assets. Conversely, if shareholder support for Bitcoin grows, it could stimulate further discussions about Bitcoin’s role in traditional finance.
With global economic pressures and concerns about inflation on the rise, the conversation surrounding Bitcoin as a corporate asset is far from over. While some argue that Bitcoin offers protection against inflation, cautious firms like Microsoft reflect the broader uncertainty surrounding the future of this asset class within corporate finance.
