How to Climb the Crypto Learning Curve

By September 22, 2022No Comments

Just-released NeuGroup Peer Research reveals that despite the turmoil in the cryptocurrency market, treasury’s efforts to become crypto-ready remain on track.

The summer of 2022 wrought havoc on the cryptocurrency market; however, the extreme volatility did not undermine corporate treasuries’ resolve to become more crypto-fluent. While the headlines were disturbing, crypto payments have now become an inevitability for companies, and to ignore crypto can mean missing important strategic growth opportunities. In our most recent NeuGroup Peer Research report, A Treasurer’s Guide to Becoming Crypto-ready, produced in partnership with liquidity provider B2C2, we share insight and corporate treasury examples based on dozens of interviews with members in recent months.

Emerging stronger. The late spring collapse of stablecoin Terra/Luna sent shockwaves throughout the crypto-verse. But according to Nicola White, USA CEO of B2C2, “The market turmoil has been largely the result of crypto-ecosystem participants prioritizing P&L growth over sound risk management and good governance. The lesson for participants is to choose counterparties carefully and prioritize those that are building for the long term.”

Fast-tracking the exploration process. Our research revealed that many corporate treasuries are accelerating their efforts to become crypto-savvy.

  • The majority focus on supporting their companies’ strategic objectives, speeding up cross-border payments, and eventually accessing crypto as a funding source and even leveraging investments in digital currencies to pick up yield.
  • “Many treasury groups are way behind in terms of the back-office operationalization of accepting and paying in cryptocurrencies,” said one treasurer. “Digital assets are the future. We just need to introduce them in a safe and controlled manner.”

Ready. Set. Go. To speed their climb up the learning curve, treasuries are forming “SWAT” teams with the mandate of speaking with vendors, fintechs and each other to prepare for transacting in crypto.

  • “Working through the governance, compliance and overall strategy for entering the crypto and the digital assets space is important to do before competitors and other market participants build out their own,” said Matt Thomas, who leads NeuGroup’s digital assets working group. “During the bear markets, companies are building, investing and acquiring where they see opportunities.”

Companies are taking one step at a time. Treasuries are inherently cautious, so they are taking a phased in approach to entering the crypto markets:

Phase 1: Mastering the crypto ecosystem. Most corporate treasury teams are currently at the knowledge-acquisition phase.

  • In our crypto-related sessions, including those of NeuGroup’s digital assets working group, members still have more questions than answers.
  • To speed up learning, treasury should benchmark against peers, voraciously consume research materials, and collaborate with internal partners such as accounting, tax and legal as well as players in the crypto ecosystem, e.g., OTC dealers, liquidity providers and custodians.

Phase 2: Piloting through a third party. Treasury typically starts by opening an account with a third party – e.g., a custodian or a broker-dealer OTC provider that is connected to others in the ecosystem and provides a one-stop solution for safekeeping, trading and transaction monitoring.

  • “Right now, our opinion is why build something we can rent? So, we use a third party for market access and pricing. However, the rich fees and cost will drive whether to bring in-house,” one member of the working group said.
  • “A third party can handle the volatility in prices, which still requires specialized skills,” explained another member.

Phase 3: Holding crypto on the balance sheet. Once treasury becomes more comfortable with accepting crypto payments, investing in crypto and trading cryptocurrencies via an exchange, liquidity provider or OTC broker, they begin to experiment with holding some crypto on their balance sheet as working capital.

  • In some cases, treasury has a two-way flow that is crypto, e.g., in the case of NFTs. But for now, for most corporates, the short-term holding of crypto is not material to their balance sheet.
  • Most treasuries immediately convert bitcoin or ether into USD or another fiat currency.

Phase 4: In-sourcing the technology infrastructure. Finally, treasury organizations that have significant crypto holdings and trading volume are beginning to assemble the necessary technology platforms required to transact on blockchain, and hedge exposures with derivatives.

  • At this point, it is important to address any system connectivity issues between crypto trading and other critical processes such as cash forecasting, trade confirmations, accounting/record keeping and risk management.

Don’t be left behind. The bottom line is that treasury teams must get ready to provide answers to inevitable questions from CFOs and treasurers about crypto opportunities. “Crypto is here to say and corporates have not been dissuaded from participating in the market, despite recent market events,” Ms. White from B2C2 said. “Whether for payments, storing value or unlocking opportunities, institutions are increasingly active in the digital asset class.”

Justin Jones

Author Justin Jones

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