Have you ever considered adding cryptocurrency as a reserve asset in your business treasury? Perhaps you have, but you’re unsure how to go about it? With point after point in favor of using bitcoin and ethereum for your business treasury, it’s about time you consider taking action.
Whether your business is large or small, holding crypto in the treasury will help diversify reserves while putting to use capital with returns that are higher than traditional currency bank interest rates. banq is a great way to get into crypto to enhance and diversify your business model.
Banq is a great way to protect yourself from disruptions such as recessions or the pandemic.
Why Cryptocurrency Is Becoming a Common Business Treasury Asset
A good tool for creating and holding a long term crypto portfolio has to be one that helps you organize your assets. Here is why:
With Bitcoin going from strength to strength for the last few years it’s safe to say that it’s not going away anytime soon. Recently, the prospect of using blockchain technology and currencies as available reserves in the business treasury is lighting up the imagination of prolific investors and corporations across the US and beyond.
So let’s get back to basics. Keeping a huge cash war chest is an inefficient use of capital. Being a financial institution is not the role of most enterprises. Sure, the cash buffer is helpful, but growing and improving a business is the primary goal. However, a “rainy day” fund has proven to be invaluable. Those who weathered the storm of the pandemic best were those with a good amount of capital set aside.
So a company holds cash beyond its standard needs for stability and as a reserve of interest-free capital to deploy when the going gets tough.
The facts at the moment are strongly in favor of using cryptocurrency and bitcoin for business treasury. It improves the flexibility of transactions, effortlessly keeps pace with inflation, works for activist investors and is a strong contender for being the primary cushion should yet another crisis hit.
The stability provided by having treasuries populated by a plethora of denominations is valuable. Having fiat currency, virtual currency, digital assets including bitcoin, ethereum plus other cryptos alongside traditional currency is a solid model for protection of all sorts of businesses.
On top of this, proprietary tokens issued by organizations are another way that cryptos can sustain their value and justifiably have a role as a safe asset in your treasury. Tokens are becoming the most effective way for new ventures to generate capital with minimal difficulty. It’s already a business model with a history of considerable success. Amazingly, it’s been discovered that companies might not even need blockchain to mint their own tokens. Tokens that are fungible outside of a company’s internal systems will rise in value as their usefulness for many different transactions becomes ever more apparent.
The prices of tokens, Bitcoin and cryptos continue to rise. This in itself is a great reason to add them to the treasury.
A few core reasons underpin the rise in value of cryptocurrencies:
- The level of adoption — which is still increasing
- The supply and demand — 88 % of all available bitcoin has been mined as of June 2021
- Competitor currencies — and their side effect of improving the bitcoin ecosystem as well as bitcoin’s exchangability
- Exchanges bitcoin registered on — with a growing number of their amount and quality
- Internal governance — still independent
- Global payments — and the rising need for them
How Can Bitcoin Be Added to the Business Balance Sheet?
Business intelligence company MicroStrategy announced earlier in June that they are selling another $400m in debt to buy more bitcoin. Tesla purchased about $1.5bn USD in the last few months. The trend isn’t just observed amongst corporations though. Safetitan is a small blockchain technology company that has added it’s own tokens to the balance sheet.
Yet, due to the novelty of this sort of activity both supranational and national legislation across the world is patchy and vague. In the US, bookkeeping rules contain no reference to bitcoin for business, virtual currency or digital assets.
Since 2019, the rules in the US that have been applied to bitcoin, and other virtual assets, are the same as for intangible assets i.e intellectual property. Specifically, companies will log the purchase of the digital asset except they will not be able to log the value if it rises unless they sell it. On the other hand if the value declines this must be logged as an impairment charge.
the rules in the US that have been applied to bitcoin, and other virtual assets, are the same as for intangible assets i.e intellectual property.
For instance, companies with digital coins in their inventory that will be sold are logged at cost price. Brokers and traders however, can hold their digital assets at market price.
In the US, holding cryptocurrency as an intangible asset is the norm. In some scenarios a business that records via Intangible Asset classification can value their holdings according to market value.
Once you’ve purchased crypto as a business asset, making payments with it is less difficult than you may initially think. Great crypto apps have solutions to protect the users and make bitcoin payments easy, too.
banq is the perfect way to add crypto to the business balance sheet. The app will provide all the security tools you need to diversify your business treasury so you can realize potential gains from crypto price rises so that you can use the profits to fund your business sustainably.
What Having Bitcoin on Your Balance Sheet Means for Taxes
Cryptocurrency and digital assets are deemed as property i.e. like stocks or bonds, in the US.
Crypto payments individuals or companies pay out to themselves are therefore liable to be taxed just the same as with capital gains IF a profit is made. And only on the profit. For instance if currency was purchased for $50 and changed in value to $200, $150 is the amount that the tax would be levied on.
International payments in cryptocurrency can be more complex in regards to taxes as legislation is not keeping pace with the evolution of crypto and blockchain technology. Levels of and payment of tax also differs according to how the digital asset is obtained or will be used:
Taxes are owed on the entire value of mined cryptocurrency. If mining as a hobby you will file on form 1040 under schedule 1 as “other income”. If mining via a business you will file under schedule C whereby you’re eligible for deductions. You will also have to pay self-employment tax.
Counts as taxable income. On the other hand rebates as shopping rewards such as if you purchase a product online and Bitcoin is credited to your account, the IRS has no guidance on. It appears that they are tax-free.
C. Payment option buyer and seller
For the seller of goods the asset counts as taxable income. Buyers may also be liable for tax if there is a greater value in goods obtained from using the asset. This would be subject to income tax.
You would owe tax just the same as with stocks. Just like with income taxes on your investment gains vary between 0% and 37%. Your specific taxes depend on: the accounting method you use, how long you hold the crypto and your overall annual income.
Having a virtual wallet such as the banq app and simply storing the crypto should incur no tax charges. However, converting to a different cryptocurrency will incur taxes if the purchasing cryptocurrency has risen in value.
7 Benefits of Keeping Bitcoin on Your Balance Sheet
Using bitcoin for business treasury has several upsides as well as unique advantages.
1. Inexpensive transactions
Historically, the bitcoin, ethereum and other cryptocurrency transaction process was inexpensive because many transactions incurred no fees. Nowadays and due to various reasons; charges are levied. A big advantage is that charges are not based on the dollar value of the currency but the data size itself. Therefore, a transaction of $100,000 dollars can easily cost the same as a transaction of $100. For this reason transaction fees are minimal when compared to traditional currency.
With credit cards, the merchant pays the transaction fee rather than the consumer or purchaser.
2. Diversified protection from financial collapse
The increasingly shaky trust in fiat currency is another reason for business and industry to back bitcoin and cryptocurrency. Investors are seeing cracks in the financial systems in place today — unprecedented levels of quantitative easing being just one example denting the trust of investors. Having diversified assets in the business treasury might just be a good idea.
3. Advantages over other commonly used treasury assets
Bitcoin has been referred to as ‘digital gold’. In reality, it has a couple of solid advantages over the long-established metal. Unlike gold, Bitcoin has a fixed supply meaning it’s less susceptible to periods of over-mining. Bitcoin nodes also mean it’s easier to verify whether the bitcoin is real, in comparison to gold. In July 2020, it was discovered that $3.1 billion of fake gold was used as collateral for loans across a complex global financial network. Bitcoin is safer to transport than heavy and conspicuous gold.
4. Payments can be instant
Transferring cryptocurrency is typically instantaneous which is more than can be said for bank transfers or card payments that can take days to move and even weeks to clear.
5. Few barriers
International trade is very simple. If currencies are converted to crypto such as Bitcoin or Ethereum then exchange rates are no longer an issue. Much of this is the reason for the rocketing trade volume in cryptocurrency.
6. New types of customers
Some people prefer to pay with crypto. Accepting bitcoin payments can only help increase the amount of business conducted, boosting revenue.
7. Surpass the competition
Becoming an early adopter can increase interest from certain investors, customers and stakeholders.
3 Disadvantages of Bitcoin on the Balance Sheet, and How to Overcome Them
It’s hard to know if what you’re buying is fraudulent or a scam. There are a number of horror stories about either cryptos being fake, or cryptos being exchanged only for the customers to get substandard goods. If something goes wrong or tokens are stolen, it’s hard to get the digital asset back when there is no international regulatory body. A bitcoin address is anonymous so that makes tracking hard.
There is surging interest in blockchain security from around the globe. In a matter of years it appears that there will be more strict regulation regarding fraud, illegal activity and crime relating to blockchain. This should mean that security is higher and defense much stronger. The safety scene surrounding blockchain has already made significant progress in the last five years. At banq, for instance, we’re a part of the crypto community, and build our own security layers that work in user favor behind the scenes.
This is the big one. You’re probably aware of the swings, dips and rallies that cryptocurrencies experience. First, as a business you may not wish to be exposed to a potential catastrophic drop in the value of your reserves, even if they only amount to a small percentage of treasury holdings. Secondly, if you have regular business and plan on using funds derived from digital currencies then the volatility of the value when changed into fiat currency is a serious obstacle to planning business operations with suppliers and partners.
Overcome by: Choose investment strategies and tools that help you diversify what you own and average out the cost of what you buy. One of the things we did to enable the users at banq is applying our core multi-account workflow on crypto investments as well. As a user, you can for instance use one account for a short position, one account for a long position, or one for an automated recurring weekly buy.
3. Limited Adoption
Though bitcoin and other crypto is becoming more and more prolific every month, we are no at mainstream adoption, and this can limit options. If you want to use your treasury tokens to purchase from a supplier, the supplier may only accept traditional currency.
Overcome by: Limited adoption will generally become less and less a problem. Blockchain will be more and more widespread. To make your life with crypto in treasury easy to manage in the meantime, use tools such as banq that are a step ahead of the adoption hurdle. With the app, you can pay someone in bitcoin and let them accept it in dollars. Or you can get paid in dollars and have it deposited into your treasury in bitcoin.
Virtual assets are prone to be bubbles. Even crypto now has more history and is becoming easier to predict, the bubbles are likely to keep happening.
Overcome by: Holding a diverse range of crypto and blockchain assets in the treasury and for a long long time. This is the best way to help offset risks to your treasury.
How to Add Bitcoin or Ethereum to Your Business Treasury: the Simple Steps with banq
Making a bitcoin business account so that you can add this asset is straightforward when doing it the banq way.
Using banq to establish a business treasury is seamless:
- Setting up takes minutes; you don’t need to visit the bank. Do all in the banq app.
- You can start a space for your business, with separate accounts for separate purposes
- You can have a business account dedicated to your crypto treasury, separated from your other funds. All your accounts are synchronized under one main, simple login.
- You can purchase cryptocurrency as part of the business account.
- You can hold your crypto as an investment and treasury diversification method, or you can use it to make payments. The payment options with banq are flexible, modern, and convenient.
- You can keep investing into your crypto treasury, and you can automate those investments too.
- You can accept payments in crypto. banq allows you to turn it into dollars if you prefer, but for the purposes of building a crypto treasury, you can keep it in crypto. The payments can go directly into your dedicated treasury account.
- You can create an authorized banq user for your accountant or business partner. They can have user permissions ranging from view-only to full admin.
- The value of your crypto treasury will be easy to view in the app.
Seriously Considering Adding Bitcoin or Ethereum to Your Business Treasury?
Having cryptocurrency and virtual assets in a business treasury portfolio is a shrewd move.
A bitcoin treasury provides a way to secure your business cash value by acting as a defense against global crises or downturns. Much the same as gold, it helps diversify assets, protecting against the inherent and increasingly glaring risks posed to the global financial system built on fiat currency. If you can also get on the bandwagon with the help of a tool that makes it quick and easy for you, it’s time to act.