Cryptocurrencies as a whole have been making a lot of noise recently, thanks to their explosive rise in value. But what are they, and why would you want to get involved?
A corporate treasury is a set of funds that corporations hold — these usually include money saved by the company for important investments that can't be put off more than 1 month. With this new market available, it's time to think about how you might want to use cryptocurrency as part of your company. Whether you're looking for an investment opportunity or using it as a means for faster payments between departments, there are many benefits to investing in cryptocurrencies right now.
What is a Corporate Treasury?
A corporate treasury is a way for a company to save and invest money, and these funds are usually for the long-term use of the corporation. As such, there are 2 main forms of corporate treasury:
The first is what you might be thinking of if someone on Twitter said, "You need to invest in cryptocurrencies." This is when corporations buy cryptocurrencies and hold them as digital gold or an asset that offers dividends, interest or other benefits. It's mostly used by larger companies that can afford to invest in cryptocurrency because they can make significant gains within a short amount of time.
Cryptocurrency has the benefit of being an asset that can be stored off the corporate balance sheet. It means you don't have to go through the same rigorous checks as other assets might require. The fact that it's not held in local currency, and is instead held in a digital currency, means that it is already neutral to those who wish to invest in cryptocurrencies.
There are several benefits of investing in cryptocurrency:
- Corporate treasury managers can invest in cryptocurrency without having to worry about what will happen if there is a sudden drop in price.
- Cryptocurrencies are an internationally accepted payment method.
- Cryptos can be automated where transactions are made automatically, and there is no need to check the transaction history.
- They can be bought through a mobile app, so there is no need to carry large amounts of cash around.
There might also be some disadvantages to investing in cryptocurrency:
- The cost of buying and storing the currency is high. You spend a lot of money on security to keep your funds safe, which is why you've probably heard a lot about “cryptojacking.”
- There is a lack of regulation. For example, there is not a standard way by which companies will be regulated to ensure they have sufficient security in order to prevent theft or fraud.
- The value of cryptocurrencies fluctuates wildly. While the real value might be good for the short term, it might not be great if your company is looking to invest in cryptocurrency long term.
The Top Cryptocurrencies for Your Corporate Treasury
There are a number of different cryptocurrencies you might want to consider for the corporate treasury. Though the market still has a long way to go, it is making remarkable gains in its growth.
Java's blockchain seeks to create a trusted platform for the development of financial products on a hybrid blockchain. It is already working on its flagship product, the Java Pay system, which can be used with credit cards and bank checking accounts.
Dogecoin is another digital currency designed for use in the corporate treasury space, though we've also seen it used online by many others. It's based on the digital currency Doge, which is a popular internet meme.
Ethereum is also a cryptocurrency that can be used on the blockchain. It's known for its role as a platform for smart contracts, and it's designed to give users more control over their own money.
All of these currencies offer varied advantages, so it's up to you and your corporate treasury department to decide which one will be right for you. Just remember that investing in cryptocurrencies comes with risk so keep your eye on security first if you want to make sure your company doesn't get burned by this new space.
Who Invests in Crypto?
The benefits of investing in cryptocurrencies is attracting a lot of interest — and not just from corporate treasuries. Here are some other notable investors in the space:
- Andrew Yang is making a $100 million investment in cryptocurrencies into his campaign for president.
- BombaPay is using blockchain technology to facilitate international payments for small companies and has made investments with many well-known names such as JP Morgan.
- Overstock was one of the first major companies to accept Bitcoin and has been trading it since 2014. The company also uses Ethereum to process its transactions through an e-commerce site.
These are just a few of the well-known investors who are already investing in cryptocurrency. The remaining potential investors can be split into 2 categories:
- Mainstream investors: These are investors like Warren Buffett and Bill Gates who can afford to invest in cryptocurrency. There are also those who continue to look for ways to get a foothold in the crypto space. For example, Goldman Sachs recently announced that it was setting up a desk for Bitcoin trading and other products on Bitcoin futures.
- HODLers: HODL is an acronym used by those who hold onto cryptocurrency, meaning "hold on for dear life." These investors are willing to hold onto their investment and wait for it to grow in value — which seems like a good idea, considering the volatility of the cryptocurrency market.
Upside of Crypto
There are a number of reasons corporate treasuries might want to consider investing in cryptocurrency:
- It allows them to be part of the next-generation currency. This gives them access to a new technology that also might catch on for use in e-commerce. Cryptocurrencies make transactions easier and faster than other payment methods, such as checks and bank transfers. It's much less expensive than using credit cards, too, which is great for international transactions.
- It provides transparency in transactions. The lack of transparency in traditional payment systems has fuelled a lot of fraud. With blockchain technology, transactions can be tracked to make sure money is going where it's supposed to go. This is especially helpful for international transactions where a number of parties are involved.
- It allows them to keep track of unusual spending patterns. With the inflation rate still low in the U.S., it's not always easy for corporate treasuries to track how much money they have and whether they're paying enough taxes. With cryptocurrency, they can see the value of their investment and tax transactions in real time.
Downside of Crypto
Investing in cryptocurrency isn't without its risks:
- Currency risk: Because cryptocurrencies are a new technology, there's always a risk they won't catch on. It's difficult to predict how popular cryptocurrencies will become, especially as some of them are only supported by a small group of people. This makes it impossible to estimate when the currency will become more popular and gain value. In addition, very few countries have regulations surrounding cryptocurrency, which could lead to more fraud and money laundering.
- Volatility: It's not yet clear whether cryptocurrency will continue to increase in value, as has been the case over the past few years. While cryptocurrencies offer a great deal of potential, they're still very new and could be affected by external factors. This investment is extremely volatile, which means a corporate treasury might see its investment decrease in value at any time.
Investments are never guaranteed, so it's important to carefully consider all of your options before making a decision. This is especially true for cryptocurrency investments, which can be dangerous because of their volatility.
Frequently Asked Questions
It’s impossible to predict which cryptocurrency will explode in 2021 because they’re extremely new and volatile. There are some promising options, including Bitcoin, Litecoin and Ripple. However, it’s best to do your own research before making any investment decisions.
As cryptocurrencies have only just begun gaining popularity over the past few years, many experts believe the market is still incredibly thin. This means that when the market grows more popular and more people begin investing, prices could soar even higher than they are today. It’s important to do your own research before making any investment decisions.
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