While the cryptocurrency market has imploded recently, treasury’s need to become crypto-fluent remains strong.
Sharp drops in cryptocurrency value have grabbed headlines and rattled investors. However, the reality for most corporates is that they must continue, and even accelerate, their efforts to understand the market’s mechanisms and dynamics. Companies’ strategic initiatives, such as issuing nonfungible tokens (NFTs), and rising demand for payment in crypto from a younger customer base, are forcing treasuries to come up the crypto learning curve.
- According to one assistant treasurer (AT), it is important that peer companies spend time learning every day. One reason: “When your CEO or CFO comes to you and says the company wants to start accepting bitcoin, you don’t want to be caught off guard.”
Pressing questions. A recent poll of members of NeuGroup for Large-Cap Assistant Treasurers revealed that none have direct crypto capabilities; however, almost all had important questions, ranging from whether there are restrictions on corporates holding crypto to how long it would take to process crypto payments. Those questions will only become more pressing, as companies move further into the digital asset space.
- One participant at a recent meeting said his company has pursued one-off sales of NFTs using a third party to manage the transaction and risk; “but just within the last week, questions came up about whether there could be regular, ongoing [NFT] sales.”
- An AT whose technology company has purchased significant cryptocurrency to test the waters, shared some of the issues treasury must address when entering the crypto sphere, ranging from implementing the basic crypto-transaction infrastructure, to understanding the appropriate risk level for the company and the tax and accounting implications.
Inevitable. Recent volatility in the crypto market may have given some treasurers pause, and no one at the meeting reported that their bosses are pushing for immediate crypto capabilities. However, the market has always had steep peaks and valleys yet continued to expand, while increasingly attracting Main Street players. Financial institutions including Bank of New York Mellon and Fidelity are planning to offer crypto custody services this summer, and 74 governments worldwide are testing digital currencies.
Testing the waters. NeuGroup’s Matt Thomas, leader of a thriving digital assets working group, suggested treasury should get a head start. For example, one of the group’s members established a crypto wallet after the company’s first NFT to get ahead in case he is tasked with building the infrastructure to support those transactions. More members are considering doing the same. At one utility company, 72 customers are already paying in bitcoin.
By taking initial steps, treasury can find out firsthand how the market works. In the case of one member company, investing a tiny fraction of its assets in bitcoin has already provided insight into crypto assets’ distinct characteristics, for example:
Digital assets are accounted for as intangibles with indefinite lives, with different impairment tests. And the tax department has been routinely involved, since it remains murky what constitutes dispositions of the assets that would trigger a gain or loss.
- Corporate governance is also key, to understand disclosures and even internal communications, since cryptocurrencies can be a “bit polarizing,” she said, “and employees want to understand what you’re doing and why.”
- While the outlook for cryptocurrency price recovery is unclear, crypto evangelists predict a continued overall rise in value. This aligns with corporate treasuries’ longer-term perspective. The objective is not to jump in in significantly anytime soon; it’s to be prepared for this eventuality. Indeed, many of our members have already established cross-functional crypto taskforces mandated to research risks and opportunities.
NFTs: Gateway drug to crypto? The table above is a distillation of the crypto storyline for some NeuGroup member companies. It starts with a desire to have an informed answer if asked about the topic. How far beyond the middle stage member companies progress, as we emerge from the current downcycle, will depend on the business case for crypto, which often starts with NFTs. At the end state, crypto expertise (including DeFi and Web3) will integrate into treasury’s complete range of specialized knowledge, or a crypto treasury center of excellence may emerge as a standalone. This crypto COE, not unlike a captive finance company, would collaborate with the traditional finance treasury yet maintain a distinct team and, perhaps, entity structure.