The yen collapsed: Japanese listed companies turned to Bitcoin for hedging

Source: Carbon Chain Value

On May 13, Metaplanet, a Japanese listed company, announced that due to the high level of government debt, long-term negative real interest rates and the depreciation of the yen, Metaplanet will use Bitcoin as its company's strategic reserve asset in response to Japan's severe economic situation. It also sets a precedent for corporate innovation in the local asset management field.

Metaplanet said that the original intention of making this strategic decision was to reduce the yen currency risk associated with Japan's fiscal policy and to take advantage of the opportunity of Bitcoin's continued monetization process that has been steadily consolidated in global balance sheets.

Japan's Economic Situation

According to Metaplanet, Japan has the highest government debt to gross domestic product (GDP) ratio among developed countries, currently at 261%, which casts a shadow on Japan's economic environment. In this case, it is necessary to adopt a long-term monetary easing policy, including depreciating the national currency, to manage existing and future debt burdens.

In addition, the Bank of Japan has been implementing a negative interest rate monetary policy since 2016, and only recently adjusted the policy rate from -0.1% to a range of 0-0.1%. Due to the relatively large national debt and structurally low interest rates, the yen has weakened significantly and has depreciated by 50% against the US dollar in the past decade. The weakness of the yen is clearly felt by all market participants, and the sporadic interventions of the Bank of Japan in the government bond and foreign exchange markets have only temporarily masked this trend. The Bank of Japan's two-pronged policy involves printing yen to buy government bonds, thereby artificially lowering borrowing costs, while intervening in the foreign exchange market to curb the depreciation of the yen caused by money printing.

Bitcoin's Advantages

Metaplanet believes that using Bitcoin as a strategic reserve asset will not only strengthen the company's balance sheet and prevent the permanent depreciation of the yen, but also position the company as a global Bitcoin-focused investment vehicle. This strategy not only utilizes a Bitcoin-centric approach, but also takes advantage of Japan's unparalleled global capital cost advantage to expand the company's international competitive advantage.

Metaplanet believes that Bitcoin has four main advantages:

First, it prevents currency depreciation. As the yen continues to weaken, Bitcoin provides a non-sovereign means of storing value that has and may continue to appreciate relative to traditional fiat currencies.

Second, speculative arbitrage in the capital market. Metaplanet intends to use its existing cash reserves and excess cash flow from asset holdings to conduct strategic currency arbitrage through the huge opportunities in the Japanese capital market, accumulating Bitcoin by issuing long-term yen liabilities when opportunities arise.

Third, it serves as a Bitcoin proxy for an operating company.While there are various forms of Bitcoin exposure around the world, including direct spot exposure and ETF/ETP, Metaplanet is implementing a Bitcoin reserve strategy as a listed operating company. This will give the company many options that are not available to global investors, including the potential for incremental capital market corporate management to obtain additional Bitcoin exposure using debt or equity when opportunities arise in the public capital markets.

Fourth, a favorable tax system. In addition, for individuals in Japan, taxes are calculated based on realized miscellaneous income, which can be as high as 55%. Meanwhile, the tax environment for listed stocks/securities is significantly worse, with realized stocks taxed at 20%. While Japanese companies previously had to pay taxes on unrealized crypto gains, this has changed due to the passage of favorable regulations.

With this in mind, a core principle of Metaplanet's Bitcoin strategy will be to focus on long-term oriented HODL, keeping the company's realized taxable gains to a minimum. In addition, Metaplanet currently has more than 10 billion yen in tax loss assets from previous efforts that can be used to offset potential realized gains in the future if necessary.

Reserve Bitcoin

Metaplanet said that the company's future strategy prioritizes the use of long-term yen liabilities and regular share issuance as strategic financial options to continuously accumulate more Bitcoin, rather than continuously retaining the increasingly depreciating yen. The purpose of this decision is to increase the value of each Bitcoin share and consolidate shareholder value.

On April 9, Metaplanet announced that the purchase of $6.5 million in Bitcoin was an initial commitment and part of a broad embrace of Bitcoin.

In fact, Metaplanet is not the first listed company to use Bitcoin as a strategic reserve asset. In 2020, US listed companies such as Square, MicroStrateg and Stone Ridge have successively bought Bitcoin as part of their strategic assets. In particular, MicroStrategy's decision to use Bitcoin as a strategic reserve has attracted global attention.

According to the latest data, Saylor, the founder of MicroStrategy, personally holds 17,000 bitcoins worth $1.05 billion. His company MicroStrategy holds 214,400 bitcoins, accounting for 1% of the total Bitcoin.

Previously, industry insiders said that the dollar depreciated, bond yields fell, gold performed poorly, and there were not many places to store their cash, so listed companies turned to Bitcoin. "It is becoming a new trend for companies to use Bitcoin as part or most of their reserve assets." said the person.