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All Aboard? The Crypto Train Has Left the Station

By June 17, 2021June 29th, 2021No Comments

Finance teams need to look beyond Bitcoin to broader opportunities offered by blockchain technology and digital assets.
 
Don’t let all noise blaring from bitcoin drown out the broader implications of blockchain technology and the need for finance teams to understand the potential opportunities offered by cryptocurrency and other digital assets including tokenized securities.

  • That bottom-line takeaway emerged at a recent meeting of NeuGroup for Cash Investment 2 sponsored by State Street, where representatives from Deloitte as well as cryptocurrency fintechs Lukka and Arca Labs walked members through the innovative possibilities of digital assets.
  • “From a treasurer’s standpoint, I’ve seen a progression of acceptance of digital assets through the years,” said Carina Ruiz, a Deloitte Risk & Financial Advisory partner. “From our first conversations with clients saying ‘heck no’ to understanding that this is the way of the future and something they need to accept, whether or not we receive or pay through it. The ship has sailed.”

Beneath the headlines. Tim Davis, a Deloitte Risk & Financial Advisory principal and Deloitte’s Global Center of Excellence for Blockchain Assurance leader, said frequent headlines about bitcoin’s ups and downs can cause people to miss the point. “The point is not bitcoin’s volatility, the point is the innovation,” he said. “It’s a Cambrian explosion of innovation in the financial markets.”

  • Blockchain innovations have led to trustless computing and decentralized finance (DeFi) tools that he said can disintermediate traditional ecosystem platforms and allow for more efficient, transparent transactions.
    • Trustless computing eliminates a middle man, allowing for direct account-to-account transactions and DeFi that relies on a blockchain and can eliminate the need to trust a bank or other counterparty.
  • Mr. Davis referred to two pieces Deloitte published about corporate investing and the use of cryptocurrency in business, which emphasize that cryptocurrency technology is an area ripe with opportunity.
  • Lukka CEO Robert Materazzi said crypto is not simply a new asset class, but a technology that can be applied to any asset class.
    • “It has resulted in some new asset classes, like cryptocurrencies such as bitcoin; we’ll see if these assets are around in 10 years,” he said. “I don’t know if bitcoin specifically will be, but I do believe assets will be using blockchain, and I think it will change the way that assets are managed around the world—across all businesses.”

An opportunity to educate. Many members are asking what steps can treasury take in the near future to prepare for the changes coming with crypto and other digital assets.

  • Rob Massey, a partner and global tax leader for Deloitte’s blockchain and cryptocurrency team, said a good start is enabling the organization to use digital assets, “in an investment category, payment or in your business. It is a good way to test drive and stress test [your company’s] systems.”
  • He said this can also help treasury understand how another team within the company will potentially treat cryptocurrency. “What they used to do with some other asset is different from what they’re going to do with crypto, so you have to learn their sensitivities real-time. You’re in it together.”

Other takeaways. Mainstream financial institutions, including custody banks, are adopting the tech and data management infrastructure of cryptocurrency native exchanges. Fintechs can offer some assistance on the data management side; one example is Lukka, which transforms blockchain data into business information that’s easier to parse.

  • As cryptocurrency becomes more regulated, KYC is also becoming more critical—and more digitized, a digital onboarding process that may be more intensive.
  • Tokens or new digital securities backed by Treasury securities—like that of Arca—highlight how traditional investment products could be wrapped in the ecosystem, and be more likely to pass muster with corporate investment policies as well.
  • Popular cryptocurrencies like bitcoin and ether go up to eight and 18 decimal places, something members say corporate and bank systems are not currently set up to handle.
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Justin Jones

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