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What the Crypto Craze Means for Corporates Seeking Use Cases

By April 29, 2021June 15th, 2021No Comments

Treasurers eye the value of Bitcoin and other digital assets as payment methods, investments and tech tools.

The fast-paced, volatile and increasingly popular world of cryptocurrencies like Bitcoin and other digital assets is sparking interest, questions and a few concerns among finance and treasury professionals.

  • Discussion at a recent NeuGroup meeting of assistant treasurers sponsored by Societe Generale pointed up how some corporates are approaching the decision about what role, if any, digital assets should play in their futures.
  • Other members are grappling with more granular issues, reflecting their relatively higher level of interest and engagement in crypto and, for some, the technology enabling its creation and use.

Three buckets: Members agreed that, depending on companies’ needs, digital currencies should be viewed in three buckets:

  1. Payment vehicles
  2. Investment assets
  3. Technology underlying the currencies that may have innovative applications.

Use cases. An assistant treasurer said his tech company is exploring uses of the distributed-ledger technology supporting cryptocurrencies as well as their use as a form of payment and as an asset.

  • Private digital currencies may currently be more accurately viewed as assets, perhaps as an inflation hedge similar to gold, he said.
  • But be careful. Rather than providing diversification, the member added, Bitcoin’s rapid adoption may correlate it more closely to risk assets.
  • As long as private digital currencies such as Bitcoin and Ethereum remain very volatile—as the chart shows, bitcoin has fallen more than 20% since mid-April but increased in value by more than six times over the last year—they will be unattractive as a form of payment. And so, members agreed, customers, advertisers and others are not yet “clamoring” to accept them.
  • Government-sponsored stablecoins may be more acceptable as currencies. “But the dollar is already digital; why do I need to make it a stablecoin?” one AT asked.

Control issues. One member’s company has launched a profitable nonfungible token (NFT) business but is struggling with how to accept ethereum digital coins as payment, in part because the account is set up in one person’s name, contrary to the traditional notion of controls.

  • “We need to take a bootstrap operation and turn it into something that has a lot more scale and, frankly, governance around it,” he said.
  • A peer agreed, noting some crypto custodians require balances in the account at all times, “and we don’t necessarily want to hold or invest a large portion of our balances in these currencies.”
  • Members said they’re comfortable using crypto exchanges and other digital companies to hold digital assets, rather than waiting for traditional, financial services custodians to get on board—as long as there are “real controls” such as two-party authentication and approval for transactions.  

Regulation would help. A member said that cryptocurrencies could be an effective payment solution in Venezuela and other markets where USD is hard to come by, noting concerns about the lack of regulations around digital currencies.

  • That’s not entirely true, a peer said, adding that transactions that involve converting fiat to crypto and vice versa must comply with know-your-customer (KYC) and anti-money laundering (AML) rules.
  • “And they have to have money transmitter licenses if they’re not a bank,” he added. “So there’s some regulation, depending [on whether] a fiat currency is involved in any part of the transaction.”
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Justin Jones

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