1 Important Tailwind That Could Send Bitcoin (BTC) Skyrocketing

While millions of cryptocurrencies exist, Bitcoin (CRYPTO: BTC) is the most successful by far. It makes up nearly 60% of the entire crypto market and tends to do the best job of weathering downturns.

Since Bitcoin is worth over $2 trillion, it may not seem like a cryptocurrency that's going to skyrocket in value. But there's a fairly recent development that could be a huge tailwind for Bitcoin.

Image source: Getty Images.

The rise of Bitcoin as a treasury asset

Until a few years ago, most corporations wouldn't touch Bitcoin with a 10-foot pole. It was a highly volatile asset that could plummet in value at any moment.

Software company Strategy was one of the few exceptions. It started buying Bitcoin in August 2020, continued to invest in the cryptocurrency, and would eventually become the first Bitcoin treasury company -- a company that buys Bitcoin as a business strategy. The success of Strategy (it's up over 2,000% since its first Bitcoin purchase, more than doubling the returns of Bitcoin itself) has led to other public companies taking the same approach.

The chart below shows how cumulative Bitcoin holdings at the top Bitcoin treasury companies have increased over time. In the last year, these companies have added nearly 500,000 BTC to their treasuries.

Governments are also getting in on the action. The U.S. currently owns about 325,293 BTC, according to CoinGecko (as of Oct. 24). In total, public companies and governments own nearly 1.7 million BTC, about 8% of the current Bitcoin supply.

Why Bitcoin treasuries could send the price soaring

Corporations holding Bitcoin doesn't exactly fit the original vision for the cryptocurrency. It was designed as a decentralized, digital currency, not a treasury asset. That said, it has benefited Bitcoin as an investment. Public companies have much deeper pockets than retail investors. They can make larger Bitcoin purchases, which significantly increases the demand for it.

Companies and governments that add Bitcoin to their treasuries are also typically taking a buy-and-hold approach. They aren't traders moving in and out of positions and adding sell pressure when Bitcoin's price drops.

It should be mentioned that Bitcoin treasury companies are taking on quite a bit of risk. For the most part, Bitcoin's price has been increasing over the last two years. Most of these companies, besides Strategy, haven't been through a long bear market.

Still, the trend of Bitcoin as a treasury asset should serve as a strong tailwind. Institutional adoption is an indicator of Bitcoin's legitimacy as an asset, and since Bitcoin has a limited maximum supply of 21 million, the additional demand also bolsters its price.

Lyle Daly has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.