In a July 18 blog post titled “To Bitcoin or not to Bitcoin? A Corporate Cash Question!”, Damodaran lays out a clear stance: “It is a terrible idea for most companies,” he said, adding, “my reasoning has absolutely nothing to do with what I think of bitcoin as an investment and more to do with how little I trust corporate managers to time trades right.”
Damodaran, renowned for his empirical approach to corporate finance and valuation, argues that Bitcoin fails to meet the core objectives of corporate cash holdings and instead introduces avoidable risks to both balance sheets and business narratives.
1. “Bitcoin does not meet the cash motives”
At the heart of Damodaran’s argument is a simple truth: corporate cash is meant to act as a financial shock absorber. Companies hold cash, he said, “to meet unforeseen needs,” and to navigate crises or downturns when capital markets dry up.“Replacing low-volatility cash with high-volatility bitcoin would undercut this objective, analogous to replacing your shock absorbers with pogo sticks,” Damodaran warned. Given Bitcoin’s history of plunging during market sell-offs, he said, “the value of bitcoin on a company’s balance sheet will dip at exactly the times where you would need it most for stability.”
2. “Bitcoin can step on your operating business narrative”
Damodaran argued that allowing Bitcoin to play a prominent role on the balance sheet can distract from the company’s core business story. “It creates confusion about why a company with a solid business narrative from which it can derive value would seek to make money on a side game,” he said.
Even worse, he said, Bitcoin’s inherent volatility can obscure a company’s performance: “The ebbs and flows of bitcoin can affect financial statements, making it more difficult to connect operating results to story lines.”
3. “Managers as traders?”
The professor made clear his skepticism about letting CEOs and CFOs dabble in timing markets. “When companies are given the license to move their cash into bitcoin or other non-operating investments, you are trusting managers to get the timing right,” he noted. “That trust is misplaced, since top managers… are for the most part terrible traders, often buying at the market highs and selling at lows.”
Instead of letting corporate leaders gamble on Bitcoin, Damodaran argued that shareholders would be better off receiving that cash as dividends or buybacks to deploy it how they see fit. “Put simply, if you believe that Bitcoin is the place to put your money, why would you trust corporate managers to do it for you?”
4. “License for abuse”
Damodaran underscored a governance concern: “Giving managers the permission to trade crypto tokens, bitcoin or other collectibles can open the door for self-dealing and worse.” He suggested that even if shareholders don’t object, regulators might need to step in. “The SEC (and other stock market regulators around the world) may need to become more explicit in their rules on what companies can (and cannot) do with cash,” he said.
The carveouts: When Bitcoin might make sense
Though firmly against most firms converting cash to crypto, Damodaran outlined four carveouts where holding Bitcoin might be justifiable, albeit with strong governance and transparency:
“The Bitcoin Savant”: A company led by a CEO trusted for their trading acumen, like MicroStrategy’s Michael Saylor, may earn shareholder buy-in to speculate with cash.
“The Bitcoin Business”: For companies like Coinbase or PayPal, which handle Bitcoin as part of their operations, it can make sense to hold the asset as working capital.
“The Bitcoin Escape Artist”: Firms in countries with failed fiat currencies, such as Argentina, might rationally prefer Bitcoin over unstable local currencies.
“The Bitcoin Meme”: Companies like AMC or GameStop, whose stock prices are driven more by trading momentum than business fundamentals, may choose to amplify that volatility.
Even in these cases, Damodaran called for “shareholder buy-in,” “transparency about Bitcoin transactions/holdings,” and “clear mark-to-market rules.”
Cui Bono? Damodaran’s final word
Damodaran concluded by cautioning Bitcoin advocates who are eager to see institutional and corporate adoption. While more demand may boost prices in the short term, the longer-term costs could prove damaging. “Adding these investors to the mix will put [Bitcoin’s] volatility on steroids,” he warned, and “may lead at least some of them to regret this push.”
His final takeaway for companies considering a crypto pivot? No matter how bullish you are on Bitcoin, think twice before making it part of your corporate cash strategy.
Also read | I don’t promote stocks, seek out investors: Aswath Damodaran
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
