Owning included cash management and treasury in-depth at CFO for yrs, I have been astounded by the statements of businesses investing slices of their cash reserves in Bitcoin. Some small business media outlets, as well, propose it can make ideal perception for a VP of treasury to get small-phrase cash residing in income current market cash or time-bearing deposits and get units of the cryptocurrency.
In “Holding Bitcoin Nevertheless Risky,” we observe why, unless of course a company expects cash inflows and outflows in Bitcoin, it would be a really speculative, unsafe investment. As Marwan Forzley, CEO of Veem, informed our reporter, “While Bitcoin’s selling price has long gone up considerably, we have also observed substantial drops that can generate rather a little bit of losses.”
Halt right there. Principal preservation is the sine qua non of small-phrase cash management. Lose more than a few million dollars of the cash to be spent on funds jobs or sit on the stability sheet as a protection web, and you’ll be shown the door.
We are more than a 10 years past the economical crisis, but I guess the freezing of the auction-charge securities (ARS) current market in 2008 has been forgotten. Keeping those debt instruments — which experienced a very long-phrase nominal maturity but experienced an fascination charge that consistently reset by a dutch auction — finally induced tens of millions of dollars of company cash compose-downs. Financial institutions dropped, as well — company clientele sued them for internet marketing ARSs as protected, really liquid, and cash-equivalent securities.
Bitcoin may well be liquid, but it is considerably from protected, and the accounting is muddled. Inspite of becoming traded in an energetic current market, Bitcoin is even now deemed an intangible asset. What’s more, the Monetary Accounting Standards Board is in no hurry to established any new benchmarks for it, suggests new FASB Chair Richard Jones.
I fear the Bitcoin tribe will pressure treasurers and finance chiefs to allot some portion of their small-phrase cash to Bitcoin. But finance executives shouldn’t be swayed by defective arguments this sort of as that Bitcoin is an productive hedge against inflation. Based mostly on no intrinsic price, Bitcoin’s selling price does not correlate with any asset price ranges or movements in inflation costs, so how can an investor construction a hedge with it?
The arguments for holding Bitcoin ignore current market realities and economical management principles. Only if a finance executive is Alright with that really should they think about incorporating cryptocurrency to a portfolio.
This feeling piece initially appeared in the April/May perhaps 2020 print model of CFO.