CryptoRisk Management

In Creeps Crypto

By July 1, 2021No Comments

While most companies aren’t directly involved in crypto yet, members expect questions and are looking for answers.
 
In a twist providing insight into an increasingly important issue, assistant treasurers at a recent NeuGroup meeting pointed to a discussion about cryptocurrencies as one of their takeaways while saying digital currencies have not yet had an impact on their treasury departments.  

  • Members of NeuGroup for Large-Cap Assistant Treasurers agreed that corporate higher-ups would almost certainly inquire soon about digital currencies and assets—one reason many finance teams are having discussions about this hot topic.

Fear prompts early considerations. One member noted insurance companies announcing purchases of cryptocurrencies, and a peer responded that many are purchasing bitcoin and other digital currencies in case clients face ransomware attacks requiring cryptocurrency payments.

  • “We started investigating that as well,” said another AT. “We don’t want to own bitcoin, but we wanted to know what would happen in a ransomware situation, and where we could get” the cryptocurrency.
  • Fear of hyperinflation prompted discussion of another potential use case, in countries with highly volatile currencies. Farmers and other exporters in Venezuela and Argentina, for example, may prefer cryptocurrencies over the local currency that may rapidly lose value.
    • In a previous meeting, one member said her company was toying with that idea.
  • A member noted that his firm exited Venezuela years ago, and back then gold—an asset cryptocurrencies are at times compared to as a store of value—was similarly under consideration.

Other blockchain stuff. The extreme volatility of cryptocurrencies has dominated headlines, but blockchain technology is emerging in other forms that may impact treasury.

  • A few NeuGroup members have suddenly found themselves able to monetize their companies’ iconic images as non-fungible tokens (NFTs), in which a digital imprint is taken of the image and traded on a blockchain. NeuGroup’s Scott Flieger said the companies immediately converted to US dollars the cryptocurrencies used to pay for the NFTs, since “they had no interest in being long cryptocurrency.”
  • The bigger impact for corporate treasury, Mr. Flieger said, may be central bank digital currencies (CBDCs).
  • “This topic isn’t going away and it may move from cryptocurrencies to CBDCs,” he said. “The Chinese are pretty far ahead relative to the rest of the world, which could negatively impact the US economy.”

Need to know. A clear takeaway from the meeting was that ATs still have much to learn about cryptocurrencies, which have rocketed in less than a year from an obscure asset to one in which the largest financial institutions want exposure.

  • “It’s not something I’m getting pinged about a lot,” one member said. “But the more information and understanding I have about what others are doing is very helpful if that question does come up.”
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Justin Jones

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