Corporates investing in crypto
Considerations regarding allocations to digital assets
More and more operating companies have begun allocating cash to digital assets and crypto currencies. This is a new dynamic and a departure from more conventional investing by funds and others in this space. How would you do that? Explore these guidelines for the relevant questions, processes, and procedures supporting such a decision.
Please note that US Regulatory audit and investment related regulation differ from those of Finland/EU. While this is the case, the article contains valuable insight on crypto currency investment.
In 2020, more operating companies began allocating cash to digital assets and cryptocurrencies. This is a new dynamic and a departure from more conventional investing by funds and others in this space. One telling example is MicroStrategy Inc., which announced, last December, that it had made more than $1B in total Bitcoin purchases in 2020, a move that it characterized as an investment that would “provide the opportunity for better returns and preserve the value of our capital over time compared to holding cash.”1 Some companies have followed suit, and others may now be wondering how to invest in Bitcoin and other digital assets. There are a variety of reasons for adding digital assets to a company’s balance sheet, whether it’s seeking asymmetric risk return observed over previous years or as a natural hedge against fluctuating fiat currencies; whether it’s part of a corporate strategy to embrace modern, open technologies; or as a complement to an operational strategy that includes accepting digital assets as payments.
This paper focuses largely on Bitcoin investments, considering recent increased investments in Bitcoin, and its common reference as a store of value. It should be noted that there are numerous types of digital assets, each having their own unique characteristics. Ethereum is also viewed as a store of value, with the added use of enabling transactions on Ethereum-based decentralized applications. These contrast with central bank digital currencies (CBDCs) and stablecoins, which are digital representations of fiat currency. Their value is derived from an actual currency in circulation, and they are issued by a central bank. Equity and derivative tokens are digital assets whose value may represent actual corporate stock or a legal right to another asset or financial instrument. Some digital assets have additional attributes, such as voting rights on a protocol, or they may provide a level of access for participation in a decentralized application. These may provide some commercial or economic benefit to the holder. Prior to investing in any digital asset, it is important to understand the specific terms, conditions, and characteristics of the investment since those will affect accounting, tax, risk, controls, and legal considerations, among others.
What follows here, then, is some guidance on what undergirds any corporate decision to invest in digital assets like Bitcoin. In addition, we set out the ongoing actions that teams across a company should undertake to monitor and go forward with a long-term investment. In other words, our goal is to answer the question “How would you do that?” rather than “Why do it?”
Before proceeding, we want to make one point absolutely clear: There is no playbook or foolproof approach for these kinds of bold moves. There is only painstaking effort, disciplined analysis, fresh thinking and rethinking, dedicated collaboration across competencies, and, above all, rigorous execution. What follows, then, is not a step-by-step prescription, but instead a high-level guided tour of the wide terrain companies should cover when they are considering investing in Bitcoin. Additionally, note that what is stated here cannot necessarily be extrapolated to all digital assets, given that they have many different characteristics.
Our thanks go to Phong Le, President and CFO of MicroStrategy, Inc. and to Jeremy Blank, Deloitte lead client service partner serving MicroStrategy, Inc., for their support in writing this paper. The authors bear sole responsibility for the content and views expressed here.