Possessing protected cash administration and treasury in-depth at CFO for yrs, I have been astounded by the statements of providers investing slices of their cash reserves in Bitcoin. Some enterprise media stores, way too, counsel it tends to make great feeling for a VP of treasury to consider brief-term cash residing in money market place money or time-bearing deposits and obtain units of the cryptocurrency.
In “Holding Bitcoin However Risky,” we note why, until a corporation expects cash inflows and outflows in Bitcoin, it would be a extremely speculative, unsafe investment. As Marwan Forzley, CEO of Veem, explained to our reporter, “While Bitcoin’s price has gone up substantially, we have also observed significant drops that can create pretty a little bit of losses.”
Prevent suitable there. Principal preservation is the sine qua non of brief-term cash administration. Shed additional than a number of million bucks of the cash to be invested on capital initiatives or sit on the harmony sheet as a safety net, and you are going to be proven the door.
We are additional than a ten years past the money crisis, but I guess the freezing of the auction-rate securities (ARS) market place in 2008 has been overlooked. Holding individuals personal debt devices — which experienced a extensive-term nominal maturity but experienced an fascination rate that on a regular basis reset by way of a dutch auction — in the long run induced hundreds of thousands of bucks of company cash write-downs. Banking companies missing, way too — company consumers sued them for marketing and advertising ARSs as protected, extremely liquid, and cash-equivalent securities.
Bitcoin could be liquid, but it is far from protected, and the accounting is muddled. Irrespective of being traded in an lively market place, Bitcoin is nonetheless regarded as an intangible asset. What’s additional, the Financial Accounting Criteria Board is in no hurry to set any new benchmarks for it, states new FASB Chair Richard Jones.
I dread the Bitcoin tribe will tension treasurers and finance chiefs to allot some part of their brief-term cash to Bitcoin. But finance executives should not be swayed by faulty arguments this sort of as that Bitcoin is an successful hedge in opposition to inflation. Dependent on no intrinsic worth, Bitcoin’s price does not correlate with any asset costs or actions in inflation fees, so how can an trader construction a hedge with it?
The arguments for holding Bitcoin disregard market place realities and money administration concepts. Only if a finance govt is Ok with that need to they consider incorporating cryptocurrency to a portfolio.
This impression piece initially appeared in the April/May perhaps 2020 print model of CFO.