Bitcoin is still early

[Lordosis]

why do you think that?

Because a tech company or a burrito business should not be investing their capital. They should run their business and use the money for that. If they have extra they can pay out a dividend and their shareholders can invest in whatever they want.

Why doesn't Apple put their cash reserves in VTSAX? It is expected to go up and beat inflation right?

[billy]

2nd Business is a restaurant. Opened in 2019 and we survived through COVID in 2020. And I mean barely survived. But we are on pace to have an outstanding 2021. Prior to COVID our plan was to expand to at least 3 locations in the city that I live....followed by 6-10 more locations in surrounding cities over the next 5 years. Although our time frame got kicked back a little, we are still planning this expansion.

How does BTC help this? When we made the BTC investment, we had excess cash sitting around (for various reasons) and it was obvious we wouldn't be using that cash for some time. We wanted a place to park that money until we wanted to use it for our next locations. Although it could have been left in cash, I was very confident that BTC would far outpace cash in the time frame that I was looking at. I could have been wrong and BTC could have lost 50% of it's value, but that was very unlikely. Even if it did, we would still be able to expand and it would not have a material affect on our company. If BTC gained in value like I expected (and like it has) then I was confident it would help us expand more rapidly.

Now we have the option of taking some of that money out and using it to expand, take it out as a distribution, or using it as collateral for future loans. On these lines there can also be tax advantages for the business for keeping cash in BTC rather than taking it as a distribution and then investing it personally in BTC. There will likely be changes this year or next with the IRS and the FASB....

On the medical practice side of things, we have significant capital purchases every year and are also in the process of expansion. So some practices would have good reason to not take full distributions of capital. This is not the case for every medical practice. I would agree with you that there are some medical practices that should just distribute everything they can to the owner/doctors and let the doctors do what they like with it.

In both situations, distributions to owners are still being made....but there are good reason to not distribute all funds when a company is trying to expand.

Re: the restaurant - I’d be upset if my partners invested cash that was allocated to be used within 5 yrs for company growth. You made a speculative bet and are winning, but for short term use of money (<5 years) it’s not the right move. I’d say the same even if you invested it in vtsax. Some risks are not worth taking.

[chucki]

but the purpose of a treasury reserve isn't really to grow the asset is it? isn't it more to maintain value?

I can't think of a better form of capital preservation.

[chucki]

On the medical practice side of things, we have significant capital purchases every year and are also in the process of expansion. So some practices would have good reason to not take full distributions of capital. This is not the case for every medical practice. I would agree with you that there are some medical practices that should just distribute everything they can to the owner/doctors and let the doctors do what they like with it.

I feel like our group holds way too much cash instead of giving out larger distributions. Our leadership is overly conservative and likes to keep a stockpile. I guess after a long enough time span, it doesn't matter but I would prefer to have cash distributed to partners as opposed to decaying/inflating away in a bank account. How do most groups handle this?

[jacoavlu]

Because a tech company or a burrito business should not be investing their capital. They should run their business and use the money for that. If they have extra they can pay out a dividend and their shareholders can invest in whatever they want.

Why doesn't Apple put their cash reserves in VTSAX? It is expected to go up and beat inflation right?

you seemed to answer a different question.

you suggested these companies are doing it to just look hip or something. Why do you think that?

[jacoavlu]

I feel like our group holds way too much cash instead of giving out larger distributions. Our leadership is overly conservative and likes to keep a stockpile. I guess after a long enough time span, it doesn't matter but I would prefer to have cash distributed to partners as opposed to decaying/inflating away in a bank account. How do most groups handle this?

democratically, ideally

do they understand that you get taxed on the income whether distributed or not? No one is saving taxes by the company hoarding cash (assuming you're not a C corp)

meaning, you could distribute the cash, taxes stay the same, then if the company needs money later, owners contribute capital.

[chucki]

I don't think it's a tax play. We have "benevolent" dictator(s) who decide on these things and I think they are just very highly risk averse and likely accounting for catastrophic events (I am sure COVID only compounded this). I agree it should be done democratically. I am one of the newer partners so I don't want to rock the boat -- but would prefer the distributions.

[Lordosis]

you seemed to answer a different question.

you suggested these companies are doing it to just look hip or something. Why do you think that?

Because I cannot think of another good reason. What is the purpose of Tesla's bitcoin position?

[jacoavlu]

Because I cannot think of another good reason. What is the purpose of Tesla's bitcoin position?

this has been discussed https://forum.whitecoatinvestor.com/...ategy-is-doing

[FreshPaint]

Because I cannot think of another good reason. What is the purpose of Tesla's bitcoin position?

To increase their purchasing power?

USD is inflationary with low volatility, Bitcoin is deflationary with high volatility.

If one thinks that bitcoin is gaining adoption, then it makes sense to keep some % of cash in bitcoin.

[Lordosis]

To increase their purchasing power?

USD is inflationary with low volatility, Bitcoin is deflationary with high volatility.

If one thinks that bitcoin is gaining adoption, then it makes sense to keep some % of cash in bitcoin.

So should Tesla invest in Apple stock because it is likely to go up and increase their purchasing power?

Or vice versa.

Or some other combination of companies

[jacoavlu]

So should Tesla invest in Apple stock because it is likely to go up and increase their purchasing power?

Or vice versa.

Or some other combination of companies

Apple stock is not inflationary

[FreshPaint]

So should Tesla invest in Apple stock because it is likely to go up and increase their purchasing power?

Or vice versa.

Or some other combination of companies

It wouldn't be a bad idea but they can't do it because of the optics of buying another company's stock instead of buying back shares of Tesla. Buying bitcoin is a way of investing their cash without taking a PR hit. It makes them look innovative but really it's a move for a company that doesn't have a better use for their cash. Ditto for Microstrategy.

[NapoleanDynamite]

democratically, ideally

do they understand that you get taxed on the income whether distributed or not? No one is saving taxes by the company hoarding cash (assuming you're not a C corp)

meaning, you could distribute the cash, taxes stay the same, then if the company needs money later, owners contribute capital.

Disclosure: I am not a CPA or tax lawyer....

The big difference between holding BTC on the company books vs cash on the company books is that BTC is considered property by the IRS (currently). Again, this could change at any time. Gains are taxed when property is sold, but are not taxed at year end like holding large amounts of cash, as cash would be considered profit or loss from one year to the next.

So in the end, the company (or owner if taken as a distribution) will pay taxes if there are gains. But, theoretically one could put $100,000 cash from a company account into bitcoin. This would show up as a capital expenditure/property acquisition on the books not a profit. You could keep it there for 5 years. That 100k could turn in to 1 million (or 10K) and you would not have had to pay a dime of taxes on the profit over that 5 years through the company. You then take that $1,000,000 as a distribution of 500K distribution to the owners and then re-invest the extra 300-500K after taxes into a new property or purchases and your company books don't show any company profit for that large gain.

Again, taxes are paid....but deferred until gains are made.

Compare that to holding the same 100K of profit made in 2020 for which the company would have to pay taxes or take as a distribution to owners.

Again - I am not a CPA or tax lawyer.

[xraygoggles]

...BTC is the best performing financial asset in history -- 200% rate of return anually, compounded x 12 years. It really could just be that simple.

Careful with stuff like this - it makes me feel like it truly is getting near the top (not that it wasn't bubbly before). Bitcoin has been around for only a decade or so, let's give it time before we hail it as some sort of prophecy fulfilled. You should understand it's a speculation, and will crash at some point, the question is how much and what the new floor will be.

I certainly hope it continues its 200% CAGR (if that's in fact what it has done)...