Ankura Consulting Group LLC
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We see all the crypto advancements today, from Equinox gym accepting cryptocurrency payments to buying Teslas and Lamborghinis with crypto, from Fidelity allowing companies to offer its employees to invest a portion of their 401 (k) in bitcoin to Microsoft accepting bitcoin to purchase apps, games and other MS digital content, from San Jose Sharks receiving bitcoin for NHL season tickets to Uber / Lyft soon accepting crypto payment for carpool rides. Certainly, the use of cryptocurrency is changing the way we buy and sell products / services that were once only possible through real cash and credit.
With inflation rising and the looming US 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.
Here are the recent digital application focus 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 assets use and payments 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 all these, 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.
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