As more companies make strategic moves that appear to be anticipating the mainstreaming of digital currencies, corporate boards might want to consider how the expanded use of these extremely volatile financial instruments could be incorporated into their future business plans.
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In February, news broke that Tesla CEO Elon Musk purchased $1.5 billion in bitcoin for his company and would soon allow customers to purchase Tesla vehicles with cryptocurrencies. In an SEC filing, the company said purchasing bitcoin provided “more flexibility to further diversify and maximize returns on our cash.”
Less than two months since then, Visa and Paypal have announced plans to allow transactions on their payment networks to be settled in bitcoin, through their bitcoin ATM service. Morgan Stanley is allowing its financial advisors to place clients into bitcoin funds. Other companies such as Goldman Sachs have said they are considering developing some aspect of their business around accepting bitcoin and other cryptocurrencies.
Paypal CEO Dan Schulman seems convinced boards should prepare for the increased use of digital currencies. In fact, the company has set up an entire business unit dedicated to cryptocurrencies. “Making digital currencies, including the digitization of fiat currencies, more useful, understood, and ubiquitous will go a long way to driving greater digital payment use and utility,” Shulman wrote in a recent op-ed. “The benefits are legion, particularly for businesses and consumers—presenting an opportunity to engage in cheaper, safer and more efficient transactions while meeting widespread consumer demand for the expansion of payment options.”
Visa CEO Al Kelly recently revealed his company’s digital currency strategy on Fortune’s Leadership Next podcast: “We’re trying to do two things. One is to enable the purchase of bitcoin on Visa credentials. And secondly, working with bitcoin wallets to allow the bitcoin to be translated into fiat currently and therefore immediately be able to be used at any of 70 million places around the world where Visa is accepted.”
As more financial institutions and payment companies agree to accept and settle transactions with crypto currencies many companies will need to evaluate how such a change will affect their future. How fast will it take for these digital currencies to be used by millions of regular consumers? Are these currencies only for high net worth individuals, governments and corporate transactions? These are some of the questions boards will need to consider.
• Boards can start by creating/designating a committee to study the company’s potential uses of, and benefits from, cryptocurrency. The board and the company management team need to discuss their views on digital currencies and how the company might incorporate digital currencies into business operations. The use of digital currencies is not appropriate for every company at this time, however, companies can consider how they might be able to use and benefit from digital currencies in the future. Such discussions can help the board develop a timeline for adoption, estimates on the cost of transitioning to accepting cryptocurrencies, and projections for potential savings and financial gain from accepting cryptocurrencies.
• Consider how using bitcoin as a financial tool could help the company. Elon Musk appears to be betting on bitcoin becoming as valuable and interchangeable as gold. Some companies have followed his lead and are buying bitcoin in bulk. In February it was reported that business analytics firm MicroStrategy held 71,079 bitcoin in reserve (roughly $3 billion at the time) and crypto-focused merchant bank Galaxy Holdings had 16, 402 bitcoin (roughly $770 million at the time). These companies have determined that there could be a benefit to holding bitcoin on their balance sheet, potentially as a hedge against economic downturns or currency fluctuations. The risk is that bitcoin and other cryptocurrencies are extremely volatile and holding them can expose the company to spectacular losses.
Holding bitcoin on a balance sheet may not be the right move for right now, but there are different digital currencies that are intended to do things that may help a company in the future. This should be studied. For example, there are a number of companies experimenting with blockchain networks that use smart contracts, and those smart contracts will use digital currencies. If a company is considering the use of blockchain technology, they must also consider how digital currencies will factor into that.
• Anticipate change so the company is not left behind. Sometimes boards must be open to changes they might initially oppose. At the very least, the board should monitor the mainstreaming of bitcoin and other cryptocurrencies among its customers and within its industry – especially among its peers. If every other company in your industry is preparing to accept bitcoin to settle transactions, it makes sense to begin preparing for the coming change as well. Alternatively, the board should prepare evidence to show investors that the rest of the industry is wrong about bitcoin adoption and offer reasons why the course that they have set is in the best interests of the company’s long term growth.