the future of companies’ balance sheets



The price of Bitcoin has seen unprecedented growth in early 2021, reaching highs of more than $ 58,000, almost triple the maximum it reached during the 2017-2018 boom. We are entering an era where institutions are starting to turn to Bitcoin (BTC)as many countries around the world have been printing unprecedented amounts of money to pay off mounting debt. And to make matters worse, they also face the risk of unmanageable inflation. This perfect storm of macro conditions means that institutions like Pension funds, hedge funds, as well as high-net-worth individuals with trillions of dollars in combined value are starting to pay attention and learn about Bitcoin..

Unlike the bullish rally of 2017, the current rally is driven less by hype and more by acceptance of Bitcoin in the traditional financial world as a scarce asset class. The adoption of crypto assets by companies and institutions has been the driving theme of 2021, with Tesla investing $ 1.5 billion in Bitcoin, one of the most prominent examples of corporate adoption to date.

Additionally, large institutions are recognizing Bitcoin’s importance as a store of value, and many have been adding millions of dollars of the asset to their balance sheets, including Goldman Sachs, Standard Chartered, Square, BlackRock, Fidelity Investments, MicroStrategy, and more.

But the cryptocurrency landscape has to change for Bitcoin to truly enter the traditional world. Institutions cannot use private keys that can be easily lost, or transact with long strings of letters and numbers, or store funds on exchanges with high counterparty risk.

Regulation is important

The new cryptocurrency regulation in the United States is making cryptocurrency holding easier and more acceptable by providing more security in all jurisdictions. Last month in the United States, the Office of the Comptroller of the Currency provided much-needed regulatory certainty in relation to cryptocurrency activities. Brian Brooks, acting controller of the currency, stated that access to blockchains such as Bitcoin or Ethereum, holding coins from these avenues directly or on behalf of clients, and managing nodes for a public blockchain are allowed. In other words, this allows banks to actively participate, which is a big step in the direction of improving the comfort level of institutions interested in owning cryptocurrency.

We are also seeing further developments in terms of custody and management of digital assets, allowing even more institutional and corporate players to enter the space. Goldman Sachs recently issued a request for information to explore the bank’s digital asset custody plans, as part of a broader strategy to enter the stablecoin market. Although the details are not yet firm, these moves by key institutions are fueling the fire.

The next generation for cryptocurrencies

While these institutions have huge teams to manage and oversee their new crypto holdings, smaller companies have also started experimenting with adding Bitcoin and other cryptocurrencies to their balance sheets. As companies, large and small, start owning cryptocurrencies, it is becoming increasingly clear that the next generation of companies will act more like investors holding and balancing funds across multiple asset classes.

This includes companies for which cryptocurrencies and blockchain are not their core business, which reconfigures the companies’ own value proposition: Everyone now has a fund whose returns may be unrelated to their core business offering. Small businesses that may have only had cash are now investors concerned about their liquidity. In the emerging world of decentralized finance, the sky is the limit on how complex asset management can be; You can buy and sell derivative products, participate in loans, and much more.

I foresee a future in which all companies have cryptocurrencies on their balance sheets, and in which all companies are investors, whether it is their main commercial offering or not. But this future depends on both user experience and regulation. Some companies and institutions that hold cryptocurrencies are willing to risk taking their own operational and financial security measures to manage their cryptocurrencies, while for others, this is not possible. The traditional world will require custody solutions, a traditional user experience for transactions, wealth management in cryptocurrencies and much more..

For the smallest companies that are beginning to enter the world of cryptocurrencies, my advice is keep it simple and not be distracted by the volatility and noise of cryptocurrencies. The current rally in cryptocurrencies brings great excitement and growth opportunity, but companies must do what makes sense for them. Maintain a basic index approach to corporate cryptocurrency treasury management —For example, keeping 5% of funds in Bitcoin, 95% in cash and equivalents, and rebalancing when the price rises or falls— allows you to gain exposure to the market while being smart with cash and available.

Usually, As institutions start to take Bitcoin seriously and the combination of regulation and user experience helps make cryptocurrencies a more accessible and accepted asset class, the traditional world of financial management will evolve..

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should carry out their own research when making a decision.

The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Arianne flemming is the COO of Informal Systems, a research and development institution focused on distributed systems and protocols. He has extensive experience in financial organization and operational leadership within the blockchain space, having helped design and execute long-term financial and operational strategies.

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