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Tim Draper, a venture capitalist and bitcoin millionaire, has included bitcoin as part of a series of cash management recommendations offered to startup founders. Draper recommended holding at least two payrolls worth of cash in bitcoin or other cryptocurrencies to avoid being affected by banking failures like the collapse of Silicon Valley Bank (SVB).
Tim Draper, a well-known venture capitalist and crypto enthusiast, has recommended bitcoin as part of cash diversification advice to business founders. Draper, known for winning an auction of 30,000 bitcoins from the US Marshals back in 2014, and for his bitcoin price predictions, posted a document on Twitter that comments on several considerations companies should make in the face of bank failures.
The documentwhich presents seven different ways to avoid a cash crunch, says:
Since boards and management are responsible for making salaries, even in times of crisis, it is important to build up contingency plans for bank failures that can happen more frequently if the government continues to print money and whip up interest rates to counter inflation caused by overprinting money.
Draper comments that the collapse of Silicon Valley Bank (SVB) showed the importance of having a sound contingency strategy in uncertain times.
According to various reports, many tech startups that depended on Silicon Valley Bank faced a period of uncertainty when the bank collapsed, and did not have the necessary liquidity to complete salary payments. However, the US Federal Deposit Insurance Corporation (FDIC) averted the situation and made customers’ deposits whole under a systemic risk exemption approved by the Federal Reserve.
One of the main points of Draper’s cash management plan, which was designed with the help of individuals at the Wharton School, is diversification of bank risk. Stating that businesses can no longer rely on just one institution to manage their cash, Draper recommends keeping at least six months of short-term cash in two banks — one local and one global.
Draper also advises keeping at least two paychecks worth of cash in bitcoin or other cryptocurrencies, and maintaining excess cash in assets that can be sold in case of emergency. He supports taking these measures by saying:
For the first time in many years, governments are taking over banks, and the states themselves are in danger of becoming insolvent. Bitcoin is a safeguard against a “domino run” on the banks and against bad over-controlling management.
What do you think of Tim Draper’s advice to keep bitcoin as a hedge against bank failure? Tell us in the comments section below.
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