At least a few tech companies have invested in Bitcoin to be amazed. Last year, MicroStrategy introduced Bitcoin as its primary treasury reserve, purchasing 38,250 Bitcoin for $ 425 million between August and September 2020. Square digital payments company, which supports buying and selling bitcoin through its Cash app, bought $ 50 million worth of bitcoin in October 2020 (tech prodigy Jack Dorsey, CEO of Square and Twitter, believes Bitcoin is the Has potential to become the native currency of the Internet: “The world will ultimately have a single currency, the Internet will have a single currency. I believe that this will be the case be Bitcoin.”)
Despite these outliers, companies are particularly reluctant to invest in cryptocurrencies – for the time being.
There are circumstances in which companies hold Bitcoin in the normal course of business, says Steve Patrick, chief executive of Endurance Advisory Partners. Examples include Paypal and Square, which offer non-bank financial services like payment processing, including payments denominated in Bitcoin.
“These companies expect ongoing cash inflows and outflows in Bitcoin. Hence, it makes sense for them to hold a little bit of excess bitcoin to make the payment process easier. For them, holding Bitcoin is like a jeweler holding gold, ”says Patrick.
In certain industries, such as financial services, corporate treasurers are responsible for managing a non-cash investment portfolio. Bitcoin and other digital assets are likely to be added to more and more portfolios, often as a hedge, Patrick says, since the value of bitcoin doesn’t correlate with changes in the price of other assets like stocks and bonds.
A customer survey published on Friday by Goldman Sachs (which is relaunching its cryptocurrency trading desk) shows that 40% of respondents are exposed to cryptocurrencies and 61% expect their holdings of digital assets to increase in the next 12 to 24 months.
One obstacle to the wider adoption of cryptocurrencies is the lack of generally accepted accounting principles.
“While [Bitcoin’s] The price has increased significantly, we have also seen significant drops that can lead to significant losses. “
– Marwan Forzley, CEO of digital payments provider Veem
“Any company that has Bitcoin or other digital assets on its balance sheet must recognize its value at cost,” said Nauman Anees, CEO of ThinkMarkets, an online brokerage company. “If the asset falls in value, the company needs to adjust it by the appropriate amount. However, it cannot correct the asset up in value unless it sells it. “
Ownership of cryptocurrencies can therefore “be viewed by shareholders, investors and creditors as an additional risk that could affect a company’s valuation or access to credit,” says Anees.
Businesses (especially in these highly regulated industries) also need to consider the general lack of price stability in Bitcoin. “While the price has increased significantly, we’ve also seen significant decreases that can result in significant losses,” said Marwan Forzley, CEO of digital payments provider Veem. “When considering investing in Bitcoin, it is important to study and analyze the various legal, regulatory, tax, accounting and risk management issues.
In fact, 34% of respondents to the Goldman Sachs survey indicated that regulation is one of the highest hurdles in allocating funds for digital assets. The permissions for investment mandates were also at the top of the list.
Most CFOs and treasurers follow cash investment mandates where capital preservation and liquidity have been priorities for years. Returns were much lower on the list, even if excess corporate money parked in short-term vehicles has produced little to no return.
“Bookkeeping procedures, custody arrangements, and tax law need evolving to ensure this emerging asset can function as a treasury tool,” said Larry Pruss, senior vice president of product management for banking consultancy Strategic Resource Management.
Still, digital currency brokers are preparing for treasurers who want to test the water. Michael Moro, CEO of Genesis, says the company recently launched a corporate treasury arm. Most corporate treasuries dealing with crypto start with an investment of 1% or less, Moro points out, a much more modest allocation than either MicroStrategy or Square.