Companies investing in cryptocurrencies
Considerations on allocations to digital assets
An increasing number of operational companies are actively allocating part of their treasury to digital assets. We began to see significant examples of this dynamic in 2020, and it continues despite the fluctuations and turbulence of the markets.
An increasing number of operational companies are actively allocating parts of their treasury to digital assets. We began to see significant examples of this dynamic in 2020, and it continues despite the fluctuations and turbulence of the markets. An early example was MicroStrategy Inc., which in 2020 announced that it had made over $1 billion in bitcoin purchases and then continued to acquire more in the following years. They characterized it as an investment that 'would provide the opportunity to achieve better returns and preserve the value of our capital over time compared to holding cash.' Since then, and as of the date of this publication, they have accumulated over 226,000 bitcoins. Some companies have followed suit, and others may now be wondering how to invest in bitcoins and other digital assets. There are various reasons to add digital assets to a company's balance sheet, whether seeking the asymmetric risk returns observed in previous years or as a natural hedge against fluctuating fiat currencies; as part of a corporate strategy to adopt modern and open technologies; or as a complement to an operational strategy that includes accepting digital assets as payments.
This document primarily focuses on investments in bitcoin, considering the recent surge in corporate investments in bitcoin and its common reference as a store of value. It is worth noting that there are numerous types of digital assets, each with unique characteristics. Ether (ETH) is also considered a store of value, with the additional use of allowing transactions in decentralized applications built on Ethereum. These contrast with central bank digital currencies (CBDCs) and stablecoins, which are digital representations of fiat currency. Their value derives from the actual currency in circulation and is issued by a central bank. Equity tokens and derivatives are digital assets whose value may represent actual corporate shares or a legal right over another asset or financial instrument. Some digital assets have additional attributes, such as voting rights in a protocol, or may provide some level of access to participate in a decentralized application. These may provide some commercial or economic benefit to their holder. Before investing in any digital asset, it is important to understand the specific terms, conditions, and characteristics of the investment, as these will affect accounting, taxes, risk, controls, and legal considerations, among others.
Below, we present a guide on the fundamentals of any corporate decision to invest in digital assets such as bitcoin. Additionally, we detail the actions that corporate teams must undertake to monitor and move forward with a long-term investment. In other words, our goal is to answer the question 'How would you do it?', rather than 'Why?'.
Before continuing, we want to make something absolutely clear: there is no foolproof strategy or manual for this type of bold decision-making. It only requires meticulous effort, disciplined analysis, fresh ideas and rethinking, dedicated collaboration among competencies, and above all, rigorous execution. What follows, therefore, is not a step-by-step recipe, but a general guide on the wide range of possibilities that companies can cover when considering investing in bitcoin. Given the multiple variables and different characteristics of digital assets, the provisions presented in this viewpoint are not necessarily relevant or applicable to all digital assets. Nevertheless, the general methodology and considerations outlined here can be applied to multiple corporate investment scenarios in selected digital assets.