Tim Draper: Startups Can Hedge Bank Risk with Bitcoin
3 min read
Tim Draper: Startups Can Hedge Bank Risk with Bitcoin
**Venture capitalist Tim Draper suggests that companies should start using Bitcoin as a means of mitigating risk. A pertinent example of why this is necessary was the collapse of Silicon Valley Bank (SVB) in March 2023, which left numerous cryptocurrency and tech firms unable to access their funds. SVB was known for serving venture capital-backed tech startups, including crypto firms, and among its clients was Circle, a stablecoin issuer. SVB’s downfall left Circle scrambling when $3.3 billion of its USD Coin (USDC) reserves became illiquid, causing the stablecoin to temporarily drop to $0.88. It wasn’t until the U.S. government stepped in to bail out SVB that USDC was able to recover. This event served as a significant wake-up call for Draper, who discovered that many companies in his investment portfolio had all their capital tied to a single institution.**
**The panic that ensued was palpable. Draper recounted how a third of the companies he invested in solely banked with Silicon Valley Bank, making them incapable of meeting payroll following the bank’s collapse. He received numerous distress calls and, in many cases, offered financial aid to make payroll—albeit at a cost and limited to one payroll cycle. Draper exemplifies the immediate aftermath in which he had to extend financial support to bridge the crisis until the government bailout provided relief on the following Monday.**
**Although a lot of concerns were momentarily alleviated by the government’s intervention, the episode left a lingering fear that similar collapses could recur. Emma Hagan, a former chief risk officer at SVB, opined in March that such financial crises are bound to happen again, particularly affecting traditional banks slow to adapt. Draper, wary of another such shock, advised all his companies to establish their treasury departments. He insists on diversifying their finances, directing them to place a third of their capital in Bitcoin (BTC).**
**Risk management expert Danny Chong, co-founder of Tranchess, emphasized that part of wise treasury management is ensuring sufficient liquidity even while investing in high-yield financial products. He pointed out that companies like Apple and Google have robust treasury management teams. The collapse of SVB, according to Chong, can be attributed to poor treasury practices. The bank committed a large portion of its assets to long-term bonds, which were both illiquid and had dropped in value, compounding their difficulties when customers began rapid withdrawals.**
**In response to the SVB crisis, Draper set new guidelines for the firms in his portfolio, advocating for a diversified capital allocation strategy. He proposed dividing their funds into three parts: one-third in a large bank, one-third in a small bank, and one-third in Bitcoin. Draper argues that holding a portion in Bitcoin ensures that companies will have the necessary funds to cover payroll even if a domino effect impacts the banking sector. This diversified approach is now a standard practice among Draper Venture companies, although it might take a while before BTC becomes a widespread risk aversion tool.**
**While some forward-thinking firms have started to explore investments in cryptocurrency and digital assets as part of risk management, the bulk of institutions remain hesitant. Paul Frambot, CEO and co-founder of the lending and borrowing platform Morpho, shared his insights on protecting and maximizing capital. He stressed the significance of focusing on low-risk yields, even if that means forgoing the highest returns. Frambot explained that the primary goal is to ensure operational longevity and maintain traditional banking facilities despite being deeply rooted in crypto.**
**Frambot and Draper both recognize the critical importance of diversification in a solid treasury management strategy. Frambot illustrates that his firm not only relies on crypto but also maintains substantial reserves in traditional bank accounts to hedge against various risks, including Ethereum risk, albeit a minor one. By holding multiple stablecoins, Morpho
Bitcoin for risk management is a contradiction. Look at its past performance. Not buying into this at all.
Tim Drapers push for Bitcoin utilization as a risk buffer is incredibly timely and essential. **
Silicon Valley Banks collapse is about poor management, not a reason to dive into Bitcoin. Bad take, Draper!
Bravo, Tim Draper! Advocating for a diversified, Bitcoin-inclusive approach can safeguard against future bank collapses. **
This sounds like trading one risk for another. Bitcoin can drop just as suddenly – remember 2018? 📉🛑
Finally, someone speaking sense! Draper’s recommendation to use Bitcoin could save startups a lot of headaches. **
Venture capital firms should definitely heed Drapers advice. The SVB collapse showed that diversification is essential. **
It’s laughable to suggest Bitcoin as a stable risk-mitigation tool. History shows its price is anything but stable.
Tim Draper’s suggestion to diversify finances is gold! Keeping some funds in Bitcoin is a smart hedge against bank collapses. to **
Why trust Bitcoin when it’s anything but stable? Drapers advice could lead to bigger problems later.
Tim Drapers strategy is spot-on! Holding a third of capital in Bitcoin sounds like a smart move for risk management. **
Tim Draper hits the nail on the head! Companies need to diversify and Bitcoin could be key. 💪🪙”**
Putting a third of capital into Bitcoin just opens companies up to more risk, not less. Bad move, Draper.
Its only a matter of time before Bitcoin crashes again. Companies need consistent liquidity, not more hype coins.
Draper should be more realistic. Bitcoin could be worthless tomorrow. Is that what they call risk management? 😂🤦♂️
Tim Draper is right on the money! Bitcoin can serve as a financial lifeboat. **
Great insight by Tim Draper! Diversifying into Bitcoin can protect firms from banking system failures. **
Draper’s advice is risky. Bitcoin’s volatility could blow up in their faces!
The irony of trying to reduce risk with Bitcoin, the king of high-risk, high-reward! Not very convincing. 🤨💰
Tim Draper’s foresight is impressive. Companies could greatly benefit from his diversified financial approach! 💹🛡️”**
Tim Draper makes a compelling case! Bitcoin’s inclusion in company treasuries could be a game-changer. 🏦🔄🪙”**
Using Bitcoin to mitigate risk? Seriously? The volatility is insane!
Love Draper’s proposal for including Bitcoin in risk management strategies. Forward-thinking and practical! 💡💹”**
Why would you choose Bitcoin when it has such unpredictable swings? This doesn’t feel safe at all. 🚨💔
Absolutely agree with Tim Draper! Diversifying with Bitcoin can save firms from getting stuck in another SVB-like crisis. **
Incredible advice from Draper! Firms safeguarding their assets
Such an insightful article! Draper’s diversified approach with Bitcoin might just be what companies need to secure their future. **
Applying Draper’s diversification strategy could revolutionize risk management. Embracing Bitcoin is a crucial step forward! **
Draper’s approach to mitigate risk with Bitcoin inclusion is both innovative and practical. Essential reading! **
Diversifying with Bitcoin sounds like a viable strategy in these volatile times. Drapers plan is genius! **
I find it hard to believe that using Bitcoin is a sound strategy. Too unstable for serious financial planning.
Its about time companies rethink their risk strategies. Drapers focus on Bitcoin is a smart and necessary shift. **
Taking notes from Drapers playbook! Bitcoin can indeed be a valuable asset for managing financial risks. **