Rush to bitcoin? Not so fast, say keepers of corporate coffers

When Elon Musk's Tesla became the biggest brand to reveal it had added bitcoin to its coffers last month, many pundits were swift to call up a corporate rush towards the booming cryptocurrency.

However there's unlikely to become a concerted crypto fee any time soon, claim many finance executives and accountants loath to risk balance linens and reputations on an extremely volatile and unpredictable asset that confounds convention.

"When I performed my treasury exams, the thing we were advised as number one objective is to guarantee reliability and liquidity of the total amount sheet," explained Graham Robinson, somebody in overseas tax and treasury at PwC and adviser to the UK's Association for Corporate Treasurers.

"This is the fundamental problem with bitcoin, if those will be the objectives for treasurers, then breaking them could easily get them in big trouble."

Tesla Inc's $1.5 billion bitcoin guess saw it join business software firm MicroStrategy Inc and Twitter boss Jack Dorsey's repayments company Square Inc in swapping some common cash reserves for the digital coin.

Proponents of the cryptocurrency view it as a good hedge against inflation at a time of unprecedented federal government stimulus, a good falling dollar and record-low interest levels that produce attractive high-yielding assets difficult to find.

As the moves have prompted considerably more boardroom discussions though, headaches from bitcoin's volatility to accounting for it and storing it will probably preclude a major wave of companies holding large amounts on balance sheets for a while, according to over a dozen financial officers, board customers and accountants interviewed by Reuters.

"It will take a lot more than a tiny couple of disruptive companies buying bitcoin to affect the narrative found in boardrooms," stated Raul Fernandez, a business owner and investor who sits about the audit committee of the board of chipmaker Broadcom Inc as well as other companies.

"Larger global companies, I can't find those conversations happening right now."

One problem could lie in the devil of the accounting depth in a bookkeeping sector that, like numerous others, is still taking inventory of the type of cryptocurrencies.

The Financial Accounting Requirements Plank, which sets accounting standards for U.S. companies, does not have guidance certain to the accounting for cryptocurrencies. However, steady with discussions among another U.S. trade human body, companies apply existing FASB guidance on the accounting for "intangible assets", which usually includes intellectual property, company recognition or goodwill.

Under these rules, corporations other than investment businesses or broker-dealers cannot e book gains in the worthiness of holdings if the cost of bitcoin rise - but must write down their investment as an impairment demand if it falls.

Furthermore, once a organization writes down its holdings, it cannot record subsequent gains until it sells.

By contrast, companies periodically reflect the impact of fluctuations in traditional currencies within their financial statements.

The FASB has no immediate plans to review its treatment of bitcoin as the problem affects handful of its constituents, according to a source familiar with the matter.

"I don't think it is the best accounting up to now," said Robert Hertz, a good former FASB chairman. "I am hoping that if more mainstream companies enter bitcoin, the accounting standards panel may revisit the accounting treatment."

Outside the USA, cryptocurrencies are generally treated as intangible assets too. However in contrast to instruction under the FASB rules, writedowns could be reversed in future years. In certain cases, firms can record bitcoin at marketplace value. See EXPLAINER:

Publicly listed companies alongside one another hold round $9 billion of bitcoin, data from the Bitcoin Treasuries website shows. Around 80% is placed by Tesla and MicroStrategy, the latter with over $4.5 billion.

Square, which allows users to get and offer bitcoin, said last month it all had added yet another $170 million of the virtual coin to it has the coffers.

Of lessons, if the price tag on bitcoin rises, a company can definitely simply sell its holdings, thus realizing some benefits. Yet it is still a risky expenditure, given the cryptocurrency's record of wild swings.

In 2013, for instance, bitcoin started at around $13 and spiked to over $1,000. In 2017, it gone from about $1,000 to around $20,000. In early on 2020, it sunk below $4,000. It fell a lot more than 25% later last month only weekly after hitting a record large above $58,000. It has now recovered component of its losses.

About 5% of chief financial officers (CFOs) and senior finance leaders said they planned to carry bitcoin on the balance sheets in 2021, a survey of 77 executives by U.S. research firm Gartner found previous month.

Some 84% of respondents said they didn't plan to ever carry it as a corporate asset, citing volatility as the most notable concern, accompanied by board risk aversion, slow adoption as a widespread approach to payment and regulatory issues.

"I think generally you will find corporations will avoid that type of element," said Jack McCullough, president of the CFO Leadership Council and a former CFO.

"CFOs are likely to be very conservative found in managing corporate treasuries. They're happy sinking money into very safe spots with low interest rate. Their job is to help grow the business through its functions, and the treasury must be safe and secure."

Cryptocurrency supporters, however, state the rationale for companies to buy bitcoin is clear, not least the decline of the dollar - the dominant reserve currency - which has fallen about 4.5% against a basket of major currencies previously year.

"The worthiness of the dollar over time gets weaker and weaker," said Dave Sackett, CFO of ULVAC Technology Inc, the U.S. subsidiary of a Japanese vacuum equipment maker, and an active cryptocurrency investor.

"Bitcoin flips the script on that."

Sackett pitched ULVAC executives on buying bitcoin last April, suggesting they have a chance and cash out with probable gains. They offered the chance, he said.

Different potential headaches for executives include questions more than how a company may safely hold a cryptocurrency, and just how much it should disclose to shareholders about security precautions, said Tim Davis, principal on the economic and risk advisory practice at Deloitte & Touche, which advises firms about holding crypto on their balance sheets.

High-profile thefts from exchanges have got highlighted problems above safely storing digital property. The loss of passwords for digital wallets can be a risk. Offline or "cold" storage is greatly seen as the very best defense against hackers but there happen to be few, if any, regulatory standards.

"Do you custody it yourself?" Davis said. "Have you got an exchange custody it? How much of it do you want to have in a sizzling wallet pitched against a cold wallet?"

Ultimately, authorities added, the expansion into bitcoin by simply companies without existing ties to the cryptocurrency market may depend on the willingness of financial executives to defend myself against risk.

"The overall consensus among treasurers is that hardly any of them are going to follow this development initially," said Naresh Aggarwal at the UK's Association for Corporate Treasurers.

"As a good treasurer, if I am right and the purchase price doubles, the business may sell its keeping and make money. Whilst the company will probably be worth more, it won't come to be reflected in my own compensation," he added.

"But if the price falls, I am pretty confident I will be fired. Why bother adding my neck at risk?"