Ankura Consulting Group LLC
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We see all the crypto advances today, from the Equinox gym accepting payments in cryptocurrency, to buying Teslas and Lamborghinis with crypto, to Fidelity allowing companies to offer its employees to invest a portion from their 401(k) in bitcoin to Microsoft accepting bitcoin to purchase MS apps, games and other digital content, from the San Jose Sharks receiving bitcoin for NHL memberships to Uber/Lyft soon accepting crypto payment for rides by carpool. Certainly, the use of cryptocurrency is changing the way we buy and sell products/services that were once only possible with real money and credit.
With rising inflation and the looming recession in the US market, companies have re-evaluated their investment allocations, ensuring that investments have long-term added value, and also exploring the world of digital assets as protection against the inflation. On the other hand, corporate treasury teams must also recognize the risk associated with cryptocurrencies and balance long-term investment goals, short-term needs, and day-to-day business operations. to manage working capital.
Here are the recent digital application focus of companies:
- Some companies have allocated part of their investments in digital assets to diversification and speculation in case there is a potential profit to be reaped. Currency diversification calls for investing in more mature cryptocurrencies such as Bitcoin or Ethereum. Initial investments should be at a minimum level that the treasury team is comfortable with (consider risks such as inflation), taking into account the high volatility and uncertain level and timing of returns. The market suggests a maximum of 5% of corporate cash investments in digital assets as a safe starting point.
- Because blockchain settlements/payments are generally faster and cheaper, businesses can use cryptocurrency externally, to pay suppliers and repay debt to banks, and internally, to pay employee salaries. Additionally, some banks may even accept NFTs as collateral for corporate loan agreements.
- With much of the data collected today stored in the clouds and secured within the blockchain ecosystem, businesses can use digital assets as payment to access data needed for operational improvements.
Moving to adding the use of digital assets and payments is an important step for any business. However, extensive studies on its long-term risks and benefits, scenario analyzes on execution and process development, formation of an in-house crypto team and a service provider, all with a state of forward-looking mindset are critical to the success of any company’s crypto business. .
With all of this, businesses need to be extremely careful given the volatility in the cryptocurrency market. Businesses should get approval from their finance and legal teams before starting any cryptocurrency project, as rules and regulations change every day and may not match the risk appetite of the business.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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