Venture capitalist Tim Draper suggests that companies should consider using Bitcoin as a risk management tool. When Silicon Valley Bank (SVB) collapsed in March 2023, many tech and cryptocurrency firms faced financial difficulties. SVB, which catered to venture capital-backed startups, including stablecoin issuer Circle, held $3.3 billion in USDC reserves. The stablecoin briefly depegged to $0.88 before the U.S. government bailed out SVB, averting a crisis.
This incident prompted Draper to realize the risks associated with companies investing all their capital in a single institution. He emphasized the need for companies to establish a treasury department to mitigate risks. Draper advised diversifying investments, with a third of capital allocated to Bitcoin.
Former SVB chief risk officer Emma Hagan warned of a potential recurrence of such incidents in the banking sector. To address this, Draper urged his companies to split their capital into three tranches – one in a large bank, one in a small bank, and one in Bitcoin. This strategy aims to ensure liquidity and protect payroll in case of a financial crisis.
Danny Chong, co-founder of Tranchess, emphasized the importance of treasury management and liquidity. He highlighted the necessity for companies to have a diversified portfolio and robust treasury management practices. Draper’s approach of allocating funds to different sectors reflects a prudent risk management strategy.
Paul Frambot, CEO of Morpho, also stressed the significance of diversification in treasury management. He mentioned the importance of retaining traditional banking services while exploring low-risk yield opportunities. Frambot advocated for a balanced approach to capital preservation and operational effectiveness.
In conclusion, Draper’s Bitcoin strategy and emphasis on diversification reflect a growing recognition of the need for robust risk management practices in the face of potential financial crises. Companies are increasingly looking towards innovative solutions, including cryptocurrencies, to safeguard their capital and ensure operational sustainability.