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Digital Asset Application in Corporate Treasury

Today, it is easy to see all of the crypto advancements that are occurring. From Equinox gym accepting cryptocurrency payments, to being able to buy Teslas and Lamborghinis with crypto, from Fidelity allowing companies to offer employees the ability to invest a portion of their 401(k) in bitcoin, to Microsoft accepting bitcoin to purchase apps, games, and other MS digital content, from the San Jose Sharks receiving bitcoin for NHL season tickets to Uber and Lyft soon accepting crypto payment for carpool rides. Certainly, the use of cryptocurrency is changing the way we buy and sell products and services that were once only possible through real cash and credit.

With inflation rising and the looming U.S. market recession, companies have been reassessing their investment allocations, ensuring investments have long-term added value, and also exploring the world of digital assets as a hedge against inflation. On the other hand, corporate treasury teams must also acknowledge the risk associated with cryptocurrencies and find the balance between long-term investment goals, short-term needs, and day-to-day operations of the company to manage working capital.

Below are some of the recent digital application focuses of companies:

  • Some companies have allocated a portion of their investments in digital assets to diversify and to speculate in case there is potential profit to reap. Currency diversification calls for investing in more mature cryptocurrencies such as Bitcoin or Ethereum. Initial investments should be at a minimal level that the treasury team is comfortable with (consider risks such as inflation), taking into account high volatility and uncertain level and timing of returns. The market suggests a maximum of 5% of corporate treasury investment in digital assets as a safe spot to start with.
  • With blockchain settlements/payments being generally faster and cheaper, companies can utilize cryptocurrency externally, to pay suppliers and repay debt to banks, and internally, to pay employee salaries. Additionally, some banks may even accept NFTs as collateral for loan agreements entered by the companies.
  • With much of the data gathered today stored in clouds and secured in the blockchain ecosystem, companies can use digital assets as payment to get access to data needed for operational improvements.

Switching to the addition of digital asset use and payment is a huge step for any business. However, extensive studies on its long-term risks and benefits, scenario analyses on execution and process development, formation of an internal crypto team and a service provider, all with a forward-looking mindset, are critical to the success of any company’s crypto venture.

With this, businesses need to be extremely cautious given the volatile cryptocurrency market. Companies need to get the approval from their finance and legal teams before starting any cryptocurrency project as rules and regulations are changing every day and may not fit the company’s risk appetite.

© Copyright 2022. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.

The decision to accept cryptocurrency for payments is not something that a company can try out for a few months and then cease doing. Considering the complexity of setting up a completely new payment system, a business needs to commit to digital assets for a long-term.

Tags

capital advisory, cryptocurrency & blockchain, finance, office of the cfo, memo, f-risk

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