By Tom Wilson, Anna Irrera and Jessica DiNapoli
LONDEN / NEW YORK (Reuters) – When Elon Musk’s Tesla became the biggest name to announce he added bitcoin to the cash register last month, many experts were quick to call a corporate rush to the booming cryptocurrency .
Yet there will probably not be a joint crypto levy any time soon, say many financial managers and accountants tend to risk balance sheets and reputations on an extremely volatile and unpredictable asset that confuses the convention.
“When I took my treasury exams, the thing we said as the main goal was to guarantee security and liquidity of the balance,” said Graham Robinson, a partner in the international tax and treasury at PwC, and adviser to the Association for Business Association in the UK said. Treasurer.
“This is the fundamental problem with bitcoin, if it’s the targets for treasurers, then it could get them in trouble for breaking it.”
Tesla Inc’s $ 1.5 billion bitcoin bet has joined business firm MicroStrategy Inc and Twitter boss Jack Dorsey’s payment firm Square Inc to swap traditional cash reserves for the digital currency.
Proponents of the cryptocurrency see it as a hedge against inflation in a time of unprecedented government stimulus, a falling dollar and a record low interest rate that makes it difficult to find attractive, high-yielding assets.
Although the moves have led to more discussions in the boardrooms, major breaches of bitcoin’s volatility to offset and store it are likely to hamper major golf companies in the short term, according to more than a dozen financial officials on the board. members and accountants interviewed by Reuters.
“It will take more than a small handful of disruptive businesses investing in bitcoin to influence storytelling in boardrooms,” said Raul Fernandez, an entrepreneur and investor who served on the board of directors of chipmaker Broadcom Inc. and other companies. sit.
“Bigger global companies, I can not see those talks taking place at the moment.”
GRAPH: Betting on bitcoin – https://fingfx.thomsonreuters.com/gfx/mkt/jbyprdydope/Pasted%20image%201614856822322.png
BITCOIN’S INTANGIBLE TANGLE
One problem may lie in the devil of the accounting details in an accounting industry that, like many others, is still exploring the nature of cryptocurrencies.
The Financial Accounting Standards Board, which sets accounting standards for U.S. companies, does not have specific guidelines for accounting for cryptocurrencies. However, in line with discussions between a separate U.S. trading body, companies apply existing FASB guidelines on the accounting of “intangible assets”, which usually include intellectual property, trademark recognition or goodwill.
Under these rules, companies other than investment firms or broker-dealers cannot discuss gains in the value of investments if the price of bitcoin rises, but must write down their investment as an impairment charge if it falls.
Once a company writes down its shares, it can only record subsequent profits before selling.
In contrast, companies regularly reflect the impact of fluctuations in traditional currencies in their financial statements.
According to a source familiar with the matter, the FASB does not immediately intend to review the treatment of bitcoin, as the matter affects few of its ingredients.
“I do not think this is the best accounting so far,” said Robert Hertz, a former FASB chairman. “I hope that if more mainstream businesses get bitcoin, the Accounting Standards Board can review the accounting treatment.”
Outside the United States, cryptocurrencies are also commonly considered intangible assets. But contrary to the guidelines under the FASB rules, write-offs can be reversed in future years. In some cases, companies may adopt bitcoin at market value. See EXPLANATORY:
COMPANIES ‘CRYPTO-BILLION
The listed companies together own about $ 9 billion in bitcoin, data from the Bitcoin Treasuries website shows. About 80% are owned by Tesla and MicroStrategy, the latter with more than $ 4.5 billion.
Square, which enables users to buy and sell bitcoin, said last month that it had added another $ 170 million of the virtual currency to its coffers.
Of course, if the price of bitcoin rises, a company can always simply sell its shares and thus realize some profits. Yet it is still a risky investment, given the record of the cryptocurrency of wild swing.
In 2013, for example, bitcoin started at about $ 13 and rose to more than $ 1,000. In 2017, it rose from about $ 1,000 to about $ 20,000. In early 2020, it dropped below $ 4,000. It fell more than 25% in just one week last month after hitting a record high of more than $ 58,000. It has now recovered some of its losses.
About 5% of CFOs and senior financial leaders said they plan to keep bitcoin on their balance sheets by 2021, U.S. research firm Gartner found among 77 executives last month.
About 84% of respondents said they do not intend to ever consider it a corporate asset, citing volatility as the most important issue, followed by the board’s risk aversion, slow acceptance as a widespread payment method and regulatory issues.
“I think you will mostly find that companies will avoid such things,” said Jack McCullough, president of the CFO Leadership Council and a former CFO.
“CFOs are likely to be very conservative in managing corporate treasury. They like to put money in very safe places with low interest rates. Their job is to help the company grow through its operations, and the treasury needs to be safe and secure.”
WHY DO I HAVE MY NECK ON THE LINE?
However, supporters of cryptocurrency say the rationale for companies to buy bitcoin is clear, not least the fall of the dollar – the dominant reserve currency – which has fallen by about 4.5% in the past year against a basket of major currencies .
“The value of the dollar is weakening over time,” said Dave Sackett, chief financial officer of ULVAC Technologies Inc., the U.S. subsidiary of a Japanese vacuum equipment maker, and an active investor in cryptocurrency.
“Bitcoin turns the text on it.”
Sackett invested ULVAC executives in bitcoin in April last year, suggesting that they take a chance and then pay out with potential profits. They gave the opportunity, he said.
Other potential headaches for executives include questions about how a company can securely own a cryptocurrency, and how much it needs to be disclosed to shareholders about security measures, said Tim Davis, chief financial and risk advisory practice at Deloitte & Touche. , said. keep crypto on their balance sheets.
Theft of high-profile exchanges has highlighted problems with the safe storage of digital assets. The loss of passwords for digital wallets is also a risk. Offline or ‘cold’ storage is generally seen as the best defense against hackers, but there are few, if any, regulatory standards.
“Do you supervise it yourself?” Davis said. “Do you have the purse? How much do you want in a hot purse versus a cold purse?”
Ultimately, experts added, the expansion of bitcoin by companies without existing ties to the cryptocurrency market could depend on the willingness of financial managers to take risks.
“The general consensus among treasurers is that very few of them will initially follow this trend,” said Naresh Aggarwal at the United Kingdom’s Corporate Treasury Association.
“As treasurer, if I am right and the price doubles, the company can sell its stake and make a profit. Although the company is worth more, it will not be reflected in my remuneration,” he added.
‘But if the price goes down, I’m pretty confident I’ll be fired. Why bother putting my neck on the line? ‘
(Reported by Tom Wilson and Anna Irrera in London and Jessica DiNapoli in New York; edited by Pravin Char)