Cryptocurrencies: Considerations for Treasuries

3 Cryptocurrencies: Considerations for Treasuries The Direct Model The second model for accepting crypto is one in which organizations participate directly. With this approach, a company holds and controls its own private keys. They operate as a direct participant with their own wallet and accept the crypto directly from the remitter. A remitter can be an individual, a wallet provider, the exchange, or the custodian of the remitter. This approach requires a certain level of accounting and treasury expertise, especially if the company has chosen to hold crypto on its balance sheet. Typically, the receiving organization does not convert the crypto to fiat. Instead, the company holds the private key as a bearer instrument for their crypto. There is a hybrid version of this model were organizations may elect to use a custodian to manage their private key. This provides another question for treasury around whether they should and are ready to truly go direct. Arguably the biggest benefit to this direct approach is that the organization is able to maintain complete control of its crypto transactions and holdings by keeping it in house. This means there are very little custodian or other third-party costs, or often times none at all. Organizations control when they want to convert the crypto to fiat, so there are no immediate conversion costs as well. Transacting and holding crypto directly does come with its risks. Private key management is an unfamiliar concept for most InfoSec departments, and there can be a steep learning curve when it comes to understanding the systems necessary to secure keys. Additionally, the vast majority of organizations today have no expenses denominated in crypto. This makes it particularly difficult to make crypto transactions, or really do anything other than hold crypto once it is received. Another challenge for those that wish to adopt the direct model is that most often an exchange would be needed to convert crypto back to fiat, potentially introducing similar counterparty risk that the agency model faces. Accepting crypto: considerations Regardless of how an organization chooses to receive cryptocurrency, following good fundamentals in treasury management should prevail. This means organizations should still select their core functional currencies and work to limit exposure to non-functional currencies. These principles should not change just because crypto is added as a payment option or as an exposure for the organization. Crypto as a Form of Payment “When considering how to integrate crypto payments into treasury operations, the following factors should be taken into account. Firstly, does the treasury and accounting team have the correct tools to process crypto. Secondly, which cryptocurrencies will be accepted as a form of payment. Thirdly, another critical point that needs to be decided upon is whether or not the organization will be holding cryptocurrencies received as a payment on the balance sheet.” Dr. Sean Stein Smith DBA, CPA, Assistant Professor at Lehman College Some of the questions to consider are: • Will the corporation price in crypto or national currency? • If the former, how will price volatility be managed? • If the latter, how will 24/7 crypto price updates be captured? • Which model will be selected, agent or direct? • What is the counterparty exposure? • If agent, will the treasury hold crypto or have the agent convert and send fiat? • Which crypto currencies will be accepted and why? • What is the total cost of the selected collection method?