By Tom Wilson, Anna Irera and Jessica DiNapoli
LONDON / NEW YORK (Reuters) – When Elon Musk’s Tesla became the biggest name to reveal that it added bitcoin to its coffers last month, many scientists quickly called for a corporate rush for the thriving cryptocurrency.
Yet it is unlikely that there will be concerted cryptocurrency billing any time soon, say many financial executives and accountants who are reluctant to risk the balance sheets and reputation of a highly volatile and unpredictable asset that confuses the convention.
“When I took my state exams, the thing we were told was goal number one was to ensure balance sheet security and liquidity,”
“This is the main problem with bitcoins, if these are the treasurers’ goals, then breaking them can make it difficult for them.”
Tesla Inc’s $ 1.5 billion bitcoin bet has joined business software firm MicroStrategy Inc and boss Dorsey’s Square Inc. payment company, replacing some traditional cash reserves for the digital coin.
Proponents of the cryptocurrency see it as a hedge against inflation during an unprecedented government stimulus, a falling dollar and record low interest rates that make it difficult to find attractive high-yielding assets.
Although the moves have sparked more discussion in the boardroom, the headache of bitcoin instability to reporting and storing is likely to prevent a big wave of companies holding large sums in the balance sheet in the short term, according to more than a dozen financial officers and accountants interviewed by Reuters. .
“It will take more than a handful of destructive companies investing in bitcoin to influence the story in the boardrooms,” said Raul Fernandez, an entrepreneur and investor who is a member of the audit committee on board chipmaker Broadcom Inc. and other companies.
“Larger global companies, I can’t see these conversations happening right now.”
GRAPHIC: Bitcoin betting – https://fingfx.thomsonreuters.com/gfx/mkt/jbyprdydope/Pasted%20image%201614856822322.png
THE INTANGIBLE PAYMENT OF BITCOIN
One problem may lie in the devil of accounting details in the accounting industry, which, like many others, still takes stock of the nature of cryptocurrencies.
The Financial Accounting Standards Board, which sets accounting standards for US corporations, has no guidelines specific to cryptocurrency reporting. However, in line with discussions between individual US trade authorities, companies apply the FASB’s existing guidelines on the reporting of ‘intangible assets’, which usually include intellectual property, brand recognition or reputation.
Under these rules, companies other than investment firms or broker-dealers cannot report gains on the value of holdings if the price of bitcoin rises, but must record their investment as an impairment charge if it falls.
In addition, once a company subscribes for its shares, it cannot report subsequent profits until it sells.
In contrast, companies periodically reflect the impact of fluctuations in traditional currencies in their financial statements.
The FASB has no immediate plans to review its treatment with bitcoin, as the problem affects few of its components, according to a source familiar with the matter.
“I don’t think this is the best accounting so far,” said Robert Hertz, a former FASB chairman. “I hope that if more major companies enter bitcoin, the Accounting Standards Board can review the accounting treatment.”
Outside the United States, cryptocurrencies are also treated as intangible assets. However, unlike the FASB guidelines, write-offs can be reversed in subsequent years. In certain cases, companies can record bitcoin at market value. See EXPLANATOR:
CRYPT BILLIONS OF COMPANIES
Publicly registered companies together hold about $ 9 billion in bitcoin, according to data from the Bitcoin Treasury website. About 80% is held by Tesla and MicroStrategy, the latter with more than $ 4.5 billion.
Square, which allows consumers to buy and sell bitcoins, said last month that it had added an additional $ 170 million of the virtual coin to its coffers.
Of course, if the price of bitcoins rises, a company can always just sell its holdings, thus making some profits. Still, it’s still a risky investment, given the cryptocurrency records for wild swings.
In 2013, for example, bitcoin started at about $ 13 and jumped to over $ 1,000. In 2017, it increased from about $ 1,000 to about $ 20,000. In early 2020, it sank below $ 4,000. It fell more than 25 percent late last month just a week after reaching a record high of more than $ 58,000. Now she has recovered some of her losses.
About 5% of CFOs and senior financial leaders said they plan to keep bitcoin on their balance sheet in 2021, according to a survey of 77 executives at US research firm Gartner last month.
About 84% of respondents say they have no plans to ever hold it as a corporate asset, citing volatility as a major concern, followed by deviation from on-board risk, slow adoption as a widespread method of payment and regulatory problems.
“I think for the most part you’ll find that companies will avoid things like that,” said Jack McCullough, president of the CFO Leadership Council and former CFO.
“CFOs are likely to be very conservative in managing corporate treasuries. They are happy to put money in very safe places with low interest. Their job is to help the company grow through its operations, and the treasury needs to be safe and secure. “
WHY PUT MY DOOR ON THE LINE?
Proponents of cryptocurrencies, however, say the rationale for companies to buy bitcoins is clear, not least because the dollar, the dominant reserve currency, has fallen about 4.5 percent against a basket of major currencies in the past year.
“The value of the dollar has become weaker and weaker over time,” said Dave Saket, chief financial officer of ULVAC Technologies Inc., a US subsidiary of a Japanese vacuum equipment maker and active investor in cryptocurrency.
“Bitcoin reverses the script for that.”
Sackett offered ULVAC managers to invest in bitcoin last April, offering them to take risks and then cash out potential profits. They passed the opportunity, he said.
Other potential headaches for managers include questions about how a company can safely hold cryptocurrency and how much it should disclose to shareholders about security measures, said Tim Davis, head of financial and risk consulting at Deloitte & Touche, which advises companies on holding crypto in their balance sheets.
High-profile theft from stock exchanges has highlighted problems in the safekeeping of digital assets. Losing passwords for digital wallets is also a risk. Offline or “cold” storage is considered the best protection against hackers, but there are few, if any, regulatory standards.
“Do you take care of it yourself?” Davis said. “Do you have stock market custody? How much of it do you want to have in a hot wallet compared to a cold wallet?”
Ultimately, the experts added, the expansion of bitcoin by companies without existing links to the cryptocurrency market may depend on the willingness of financial executives to take risks.
“The general consensus among cashiers is that very few of them will initially follow this trend,” said Naresh Aggarwal of the British Association of Corporate Treasurers.
“As a cashier, if I’m right and the price doubles, the company can sell its stake and make a profit. As long as the company can cost more, it won’t affect my compensation,” he added.
“But if the price goes down, I’m pretty sure I’ll be fired. Why bother putting my neck in the queue?”
(Report by Tom Wilson and Anna Irera in London and Jessica DiNapoli in New York; Edited by Pravin Char)