From El Salvador declaring Bitcoin as legal tender, to NFTs gaining popularity, to moguls such as Michael Saylor of MicroStrategy investing even further into crypto. There is still a long way to go until cryptocurrency reaches mainstream adoption, but as these currencies and the world around them evolves, so do the implications to businesses — and more specifically, how they align themselves alongside the two.
More and more businesses are adopting digital currencies for their operational, logistical and capital investment benefits. As per BuyBitcoinWorldwide, more than 40 corporates, including 34 publicly listed companies, have direct exposure to Bitcoin on their balance sheets with cumulative holdings of more than $16 billion USD. And it’s easy to see why. Crypto has been the best performing asset class of this decade, providing significant diversification benefits to any portfolio.
Fiat currency is by no means obsolete. But the benefits of integrating digital currencies into corporate treasury management strategies are undeniable, not discounting the volatility of the market due to the decentralisation of finance. In this article, we will explore fiat vs. crypto’s potential as a store of value, medium of exchange and means of dominating your respective competitive landscapes through adopting intelligent treasury management practices .
Store of Value
Ten-year treasury yields in the United States trade at 1.3%, while inflation has risen to 5.3%. So any money held in treasury yields is losing value at 4% annually in this current regime. While the Federal Reserve has assured that “high inflation is transitory”, which may be true, its effect on wealth destruction will be permanent. For businesses, this could result in significant losses year on year. The scenario is exacerbated when you consider that some countries hold negative nominal interest rates. For instance, in Switzerland the interest rate is -0.75%, while inflation continues to rise. It would seem that cash is no longer an efficient store of value.
Comparatively, digital currencies such as Bitcoin have maintained positive interest rates. While volatile this digital currency interest rates average between 5–8%, according to BVNK Managing Director Chris Harmse. Businesses can actually generate profit from storing funds in crypto currencies.
Businesses such as MicroStrategy, Square and Tesla have led the way with digital currency investments within their corporate treasury strategies. MicroStrategy alone has more than doubled its investment in Bitcoin, with the company’s $3.16 billion USD in Bitcoin is now worth $6.7 billion USD. As the best performing asset class of the decade, this return is far greater than the majority of fiat based currency investments.
Large businesses have clearly led the way on this investment approach — broadly because they’ve had the time and resource to dedicate to understanding the opportunity within the space. But as happens with most financial services, this technology is now becoming more accessible. The barrier to entry is dropping, across both cost and knowledge gap, meaning the mid-market is now able to benefit from this.
Losing out to competitors
A survey by Skynova recently asked small U.S. businesses owners to list their top reasons for accepting crypto payments. Those surveyed were asked to give as many reasons as applied to their situation — and almost 50% listed ‘acceptance by competitors’ as a primary driver for accepting crypto. There are many reasons why a business could lose out to a competitor, including:
· Not catering to a broad enough audience
· Not being competitive on pricing
· Not being live in a certain geography
· Not being seen as innovative
Digital currencies are one of the few payment methods that can address each of the above for businesses.
· Not catering to a broad enough audience: Catering to your customers preferred payment method is essential for any business, whether it be digital currency, card payment or e-wallet solution. A survey by Shopify found that 7% of consumers abandoned checkout because their preferred checkout method was not available. So, for many businesses, not accepting digital currencies at checkout could mean losing out on a huge share of the market. And not just any share of the market. Beyond benefiting from the new audience themselves, organizations will also benefit from the fact that 40% of crypto-savvy customers spend at least double the amount that a customer spends using a traditional credit card.
· Not being competitive on pricing: Payment processing can be expensive — businesses need to consider interchange fees, FX fees and more. With digital currencies, these costs are virtually eliminated. Built on DeFI, there is no ‘central body’ to pay these fees to. Aside from needing to cover ‘processing cost’ there are no other fees applied. And whatsmore, chargebacks are eliminated with digital currencies. By nature of being on the blockchain, chargebacks are not possible — for industries such as travel which were hit heavily by chargebacks as a result of COVID-19, this is a real win.
· Not being live in a certain geography: Utilising cryptocurrency can speed up businesses expansion into new markets. Businesses don’t need a physical footprint in the region to be able to transact in new markets. They can process payments on the blockchain.
· Not being seen as innovative: Digital currencies are still considered to be innovative and disruptive. Leveraging crypto payments and acceptance, can align businesses to this positioning also.
The implications to businesses as the role of fiat and digital currencies evolve are great — from losing customers, to sitting on dwindling reserves. Businesses need to keep up with the evolution, or risk being left behind. Those who have been early to integrate digital currencies into their corporate treasury management strategy alongside fiat, such as Square, have seen great success. And for those who have not yet made the integration, pressure to accept crypto payment processing is only going to ramp, as adoption by customers increases. While integrating digital currencies into a corporate strategy may have once been reserved for large institutions, it is now becoming possible for businesses of all sizes to reap the benefits.
BVNK is making it possible for mid-market businesses to enter the digital currency market. BVNK is eliminating the need for in-depth knowledge of the crypto space, time, resource, and technical expertise, that has traditionally prevented fast-growth businesses and financial service providers from realising the benefits of cryptocurrencies. By transforming the experience, making it more accessible so that non-experts can enjoy the benefits of digital asset-based financial services, BVNK are unlocking untold possibilities for businesses. Get in touch today to establish how you can begin your crypto journey.
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