The future of the company balance sheet


Bitcoin saw unprecedented growth in early 2021, hitting highs of over $ 58,000. It almost tripled the peak of the 2017-2018 boom. We are entering an era when institutions are gradually turning to Bitcoin (BTC) as many countries around the world have printed unprecedented amounts of money to service rising debts. And to make matters worse, they are also at risk of unmanageable inflation. This perfect storm of macroeconomic conditions means that institutions like pension funds, hedge funds, and high net worth individuals with a combined worth of trillions of dollars are first paying attention and learning about Bitcoin.

In contrast to the 2017 bull run, this current run is determined less by the hype than by the acceptance of Bitcoin in the traditional financial world as a scarce asset class. The takeover of crypto assets by corporations and institutions was the driving theme of 2021 when Tesla invested $ 1.5 billion in Bitcoin, one of the best-known examples of corporate adoption to date.

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

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However, the crypto landscape needs to change in order for Bitcoin to really enter the traditional world. Institutions cannot use private keys that can easily be lost, trade with long sequences of letters and numbers, or store money on exchanges with high counterparty risk.

Regulation is important

The new crypto regulation in the US makes it easier and more acceptable to hold cryptocurrencies by providing more security in all jurisdictions. Just last month in the US, the office of currency auditor provided the much-needed regulatory security around crypto activity. Brian Brooks, acting controller of the currency, stated that it allowed access to blockchains such as Bitcoin or Ethereum, holding coins from these rails directly or on behalf of customers, and operating nodes for a public blockchain. In other words, this allows banks to get actively involved – a huge step towards improving the comfort of institutions interested in crypto.

We are also seeing further developments in the custody and management of digital assets, which will allow even more institutional and corporate actors to enter the space. Goldman Sachs recently released a request for information to investigate the bank’s plans to hold digital assets. This is part of a broader strategy for entering the stable coin market. Although the details are not yet clear, these seismic movements of key institutions are fueling the fire.

The next generation for crypto

While these institutions have large teams to manage and monitor their new crypto holdings, smaller companies have also started adding Bitcoin and other cryptocurrencies to their balance sheets. As companies large and small start holding crypto, 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 whom crypto and blockchain are not their core business, and changes the company’s value proposition: everyone is now a fund whose returns can be decoupled from their core business offerings. Small businesses that may have only held cash are now investors worried about their liquidity. In the emerging world of decentralized finance, the sky is the limit for how complex asset management can get. You can buy and sell derivative products, make loans, and much more.

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I envision a future where all companies have crypto on their balance sheets and every company is an investor, whether that is their core business offering or not. However, that future depends on both user experience and regulation. Some companies and institutions that own crypto are willing to take risks by figuring out their own operational and financial safeguards for managing their crypto, while for others this is no novice. The traditional world will require custody solutions, a traditional UX for transactions, crypto wealth management and more.

For smaller businesses starting to dip their toes into holding crypto, my advice is to keep it simple without getting too distracted by the volatility and noise of crypto. The current crypto rally brings great excitement and growth opportunities, but companies need to do what makes sense to them. If you keep a basic index approach to corporate crypto treasury management – say 5% of the funds in Bitcoin, 95% cash and equivalents – and compensate when the price goes up or down – you can get involved in the market and at the same time Cash and cash wisely bypassing the runway.

Overall, the traditional world of financial management will continue to evolve as institutions take Bitcoin seriously and the combination of regulation and user experience helps make crypto a more accessible and accepted asset class.

This article does not contain any investment recommendations or recommendations. Every step of investing and trading involves risk, and readers should do their own research in making their decision.

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

Arianne Flemming is the chief operating officer of Informal Systems, a research and development organization focused on distributed systems and protocols. She has extensive experience in financial organization and operational management in the blockchain space and has participated in the development and implementation of long-term financial and operational strategies.