Venture capitalist Tim Draper, a prominent bitcoin advocate, has suggested startups diversify their banking risk by allocating a portion of their cash reserves to cryptocurrencies. Draper recommends companies to keep two payrolls worth of cash in bitcoin or other digital assets as a hedge against bank failures like what happened to Silicon Valley Bank (SVB).

Tim Draper Recommends Cryptocurrency as Hedge Against Bank Failures

Tim Draper, a well-known venture capitalist and crypto enthusiast, has encouraged startups to keep some of their cash reserves in bitcoin or other digital currencies. Draper, who won an auction of 30,000 bitcoins from the U.S. Marshals back in 2014, and for his bitcoin price predictions, posted a document on Twitter that comments on several considerations businesses should make in the face of bank failures.

The document, which presents seven different ways to avoid a cash crunch, states:

Since boards and management are responsible for making payroll, even in times of crisis, it is important to build out contingency plans for bank failures that could happen more and more often if government continues to print money and whipsaw interest rates to counteract inflation caused by the over-printing of money.

Draper comments that the collapse of Silicon Valley Bank (SVB) showed the importance of having a sound contingency strategy in uncertain times.

Per different reports, many tech startups that were dependent on Silicon Valley Bank faced a period of uncertainty when the bank collapsed, not having the necessary liquidity to complete payroll payments. However, the U.S. Federal Deposit Insurance Corporation (FDIC) averted the situation and made customers’ deposits whole under a systemic risk exception approved by the Federal Reserve.

Diversifying Banking Risk with Cryptocurrency

One of the key points in Draper’s cash management plan, which was designed with the help of Wharton school individuals, is the diversification of banking risk. Draper states that businesses can no longer rely on just one institution to manage their cash, advising to keep at least six months of short-term cash in two banks — one local and one global bank.

Also, Draper suggests keeping at least two payrolls worth of cash in bitcoin or other cryptocurrencies, maintaining excess money in assets saleable for emergencies. He supports taking these measures by stating:

For the first time in many years, governments are taking over banks and governments themselves are at risk of becoming insolvent. Bitcoin is a hedge against a ‘domino’ run on the banks and on poor over-controlling governance.

What do you think about Tim Draper’s recommendations to diversify banking risk with bitcoin? Let us know in the comment section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

Image Credits: Shutterstock, Pixabay, Wiki Commons