Why Satoshi Inspiration Adam Back Says Bitcoin Is The New Hurdle Rate

Key Concepts

• Proof-of-Work (PoW): A mechanism requiring computational effort to deter denial-of-service attacks and other service abuses, foundational to Bitcoin's security.
• Bitcoin Strategic Reserve: A national reserve of Bitcoin held by a government, akin to gold reserves.
• Exchange-Traded Funds (ETFs) / Exchange-Traded Products (ETPs) / Exchange-Traded Notes (ETNs): Investment vehicles that track the price of an underlying asset (like Bitcoin) and trade on exchanges.
• Treasury Asset / Treasury Company: A company that holds Bitcoin as a primary asset on its balance sheet to protect cash reserves from inflation and benefit from long-term appreciation.
• Apolitical Money: A form of money not affiliated with any political system, era, or religion, serving as a universal store of value.
• Sovereign Wealth Funds: State-owned investment funds that manage national savings for the benefit of future generations.
• Quantitative Easing (QE): A monetary policy where a central bank buys government securities or other securities from the market to lower interest rates and increase the money supply.
• Hurdle Rate: The minimum rate of return required on an investment, which Adam Back argues Bitcoin should now represent for long-term investing.
• Market Cap Multiple Above Net Asset Value (mNAV): A metric used for Bitcoin treasury companies, indicating how much their market capitalization exceeds the value of their underlying Bitcoin holdings.
• Liquid Network: A Bitcoin Layer 2 solution developed by Blockstream, designed for faster, confidential, and more scalable Bitcoin transactions and the issuance of various digital assets.
• Stablecoins: Cryptocurrencies designed to maintain a stable value relative to a specific fiat currency (e.g., USD) or other assets, often used for trading and remittances.
• Lombard Loan: A type of loan secured by financial assets, often used in traditional finance for portfolio lending.
• Cross Marginable: The ability to use assets across different accounts or product types as collateral for margin trading, improving capital efficiency and reducing risk.

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Bitcoin's Evolving Reality and Adoption Phases

Dr. Adam Back, founder of Hashcash (the proof-of-work algorithm cited in the Bitcoin white paper) and co-founder/CEO of Blockstream, discussed Bitcoin's current political, economic, and social reality. He noted that Bitcoin, now trading well over $100,000 and announced as part of the US government's strategic reserve, has undergone three distinct phases of adoption:

1. Early Adopters: Individuals who purchased Bitcoin on nascent exchanges.
2. ETFs (Exchange-Traded Funds): The approval of spot Bitcoin ETFs in the US (e.g., BlackRock, Fidelity) provided access to a broader demographic, including those who interact with savings and investments through brokers, financial advisors, or online platforms. Approximately 30% of the money in BlackRock's ETF is institutional, while the remaining two-thirds are individual savers.
3. Treasury Companies and Institutional Buyers: Companies are increasingly adopting Bitcoin as a treasury asset to protect cash reserves from inflation. This phase also includes early pension funds, sovereign wealth funds (e.g., Abu Dhabi), and national banks (e.g., Swiss National Bank's 1% allocation in MicroStrategy).

Back emphasized that the adoption curve is progressing "much faster" than anticipated. Five years ago, institutional and sovereign buying was unforeseen. Initially, financial institutions were wary, then focused on "blockchain not Bitcoin," but now prioritize "Bitcoin the asset class" for financial services and portfolio recommendations.

Bitcoin as Apolitical Money and Government Reserves

Addressing concerns about Bitcoin's politicization, particularly following the US strategic reserve announcement, Adam Back asserted that Bitcoin is "apolitical money," akin to gold. He argued that it is not affiliated with any specific politics, era, or religion, and represents a "better store of value technology" and "hard money" compared to previous monetary technologies. He used the analogy, "Bitcoin is for enemies," highlighting its universal appeal, much like gold reserves held by nations, even those at war.

The US regulatory environment has encouraged other countries, such as Pakistan, to consider Bitcoin for their strategic reserves. This trend is driven by a desire to diversify national reserves and is evident in sovereign wealth funds in the Middle East and the Swiss National Bank's indirect Bitcoin exposure through MicroStrategy. Countries without direct ETF approval have historically bought proxies like MicroStrategy shares. The UK's Financial Conduct Authority (FCA) is also reportedly on track to approve Bitcoin ETFs by October 2025.

The Rise of Bitcoin Treasury Companies and the "Hurdle Rate" Concept

The wave of companies adopting Bitcoin as a treasury asset is largely a response to inflation concerns, particularly in the post-COVID era of quantitative easing. Michael Saylor's MicroStrategy serves as a prime example, where the CEO sought to preserve the spending power of the company's $500 million cash reserves by converting them to Bitcoin.

Adam Back introduced the concept of Bitcoin as the "hurdle rate" for long-term investing. Given Bitcoin's outlier performance and high Sharpe ratio over the last decade, he argued that if a business or investment fund cannot outperform Bitcoin, it should consider allocating to it. Treasury companies benefit not only from inflation protection but also from Bitcoin's long-term performance, which is correlated with its early-stage adoption.

Unlike passive ETFs, treasury companies are actively managed vehicles aiming to increase "Bitcoin per share" over time. They are evaluated by their "mNAV" (market cap multiple above net asset value), which reflects their ability to grow Bitcoin holdings and execute corporate actions.

Bitcoin Standard Treasury (BSTR) and Blockstream's Role

Adam Back is CEO of both Blockstream and Bitcoin Standard Treasury (BSTR). Blockstream is a technology company that developed the Liquid Network, a Bitcoin Layer 2 solution supporting securities and real-world assets. The Liquid Network hosts tokenized shares of companies like MicroStrategy and Metanet, which are tradable 24/7 and priced in Bitcoin, offering unique market access.

BSTR, which Back is leading, differentiates itself by having an active mandate to generate returns on Bitcoin, rather than just passively cold-storing it. Sean Bill, BSTR's CIO, is a hedge fund veteran who previously led the first pension fund to allocate Bitcoin to its balance sheet (1-3% in 2017, similar to BlackRock's current 2% model portfolio recommendation).

BSTR's recent fundraising was highly successful, raising approximately $1.3 billion in 36 days, including a unique Bitcoin-denominated equity pipe that brought in 5,000 Bitcoin, and convertible perpetual preferred notes. Roughly two-thirds of BSTR's initial capital was in Bitcoin (25,000 BTC from the new entity plus 5,000 BTC from the equity pipe), signifying a strategy of "bringing Bitcoin to Wall Street" rather than solely raising fiat to buy Bitcoin. BSTR is expected to launch with at least 30,000 Bitcoin, emphasizing scale as a primary factor for success.

The Future: Every Company on the Bitcoin Standard

Adam Back predicts that "every company will ultimately be a Bitcoin treasury company." He argues that if Bitcoin remains the hurdle rate, businesses will need to "internalize it" by operating on a Bitcoin standard, holding it as a reserve, and reinvesting excess revenue into Bitcoin.

The potential addressable market for Bitcoin is enormous, encompassing global cash and monetary premium assets (bonds, stocks, real estate, art), estimated at hundreds of trillions of dollars. This suggests that Bitcoin is still in its early days and could absorb a significant proportion of the treasury reserve assets of even the largest cash-rich companies like Apple and Microsoft.

Industry Transformation and Bitcoin's Robustness

Back drew an analogy to the internet's adoption, where initial suspicion gave way to widespread integration. He believes the world will similarly adapt to Bitcoin, with easier access, improved user experience, and growing confidence from institutional recommendations. He views Bitcoin as a "once in thousands of years evolution of a new money, a new hard money," fundamentally different from fiat currencies and potentially ushering in a new era of wealth preservation.

Bitcoin serves a dual role: as a technological innovation for the underbanked in emerging markets (facilitating remittances and local payments) and as an investment asset for the developed world, where inflation is increasingly a concern.

Regarding stablecoins, Back sees them as a modern alternative to wire transfers, born from the inefficiencies of early Bitcoin trading. They facilitate rapid movement of fiat currencies between trading venues and are increasingly used for small business transfers and remittances. Stablecoin issuers like Tether and Circle are significant buyers of US Treasuries, with Tether holding approximately $170 billion, exceeding the holdings of some major countries. Stablecoins also integrate with Layer 2 solutions like the Liquid Network, enabling convenient trading of dollar-correlated assets against Bitcoin.

Adam Back expressed less concern about Bitcoin's robustness over time, noting its maturing technology, improved ease of use, and growing competition. The "third wave" of ETFs and treasury companies is creating crucial interfaces between Bitcoin and traditional financial rails, making it easier to integrate Bitcoin into portfolios, use it as collateral for Lombard loans, and improve capital efficiency through cross-marginable assets. While Bitcoin is volatile, its 24/7 trading and extreme liquidity make it an attractive collateral asset.

In the short term, Back finds Bitcoin hard to predict but notes the rapid pace of adoption. The productization of Bitcoin within financial institutions, including the development of training materials and procedures, is still underway, and its full market impact is yet to be seen.