The high level of risk in bitcoin has limited the number of companies from the private sector holding bitcoin as a form of asset. Many are interested, but few companies have dived into having bitcoin as a part of its balance sheet.
With companies unsure of investing in bitcoin, but still don’t want to lose out on the value and wealth bitcoin offers its investors, auditing firm, Deloitte, has shed more light on areas companies must focus on.
Deloitte said before companies dip their feet into the bitcoin market, their Chief Financial Officers (CFOs) must take into consideration, the nature of bitcoin, the risk exposure, and the benefits involved.
It was stated that bitcoin and other cryptocurrencies are new dynamics, different from conventional investment mostly managed by funds. Before bitcoin, there was Gold, stock and debt securities.
Reasons to add bitcoin in balance sheet
Deloitte said there are many reasons compelling companies to invest in bitcoin and have it as an assert.
According to the consultancy company, it could be as a protection from fluctuating fiat currencies or asymmetric risk return.
The financial advisor added that a company’s passion for embracing modern opportunities provided by technology could also influence the decision, “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.” Deloitte said in a WSJ article.
Factors to consider before adding bitcoin to balance sheet
Although, Deloitte admitted that there is no playbook or foolproof approach towards adopting bitcoin as an assert, but companies must comprehend specific terms, conditions, and characteristics relating to bitcoin.
Deloitte said it is vital to have an understanding because investment in bitcoin will affect a company’s accounting, tax, risk, controls, legal considerations and more.
“The main purposes of the treasury function are risk management and the preservation of capital.
“When deciding and executing on an investment in digital assets, governance is key to all activities. More than creating a policy, governance begins with understanding the types of investments the company is making and where this alternative investment vehicle—in this case, a digital asset like bitcoin—fits within the broader investment strategy.
“Leaders also need to be comfortable with the characteristics and nature of the vehicle. Given that it’s a financial investment, it’s imperative that the treasurer, CRO, CEO, CTO, and board of directors all have a clear assessment and understanding of the asset’s risk profile, the company’s tolerance for risk, and the way these two may align or diverge.
“Ultimately, governance is all about monitoring and assuring that the conditions and requirements set by the organization are maintained”, Deloitte said, adding that “Tolerance for risk, depending on the stake and type of digital asset, may well have to be modified and periodically adjusted.”
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