Many small businesses hold assets in cryptocurrency as a way to diversify their holdings and reinvest in the market. For some time now, cryptocurrencies have gained widespread acceptance among Australian businesses and traditional investors as a payment method and an investment opportunity.
In this article, we’ll review the measures and practices that businesses should implement to protect their assets. These work regardless of the amount a company owns or the market in which it operates.
Diversifies Your Holdings
Businesses should avoid holding all their crypto assets in a single currency. That way, the risks of a downturn are mitigated, as not all assets can lose their value simultaneously and at the same rate. Crypto exchanges in Australia enable investors to trade a wide range of assets, including Bitcoin, Ethereum, and niche altcoins.
It’s essential not only to have diverse assets but also assets that are utilised across various industries and among different investor groups. For instance, Ethereum is best suited for smart contract purposes, Bitcoin is typically held for a long time, and stablecoins are ideal for risk-averse investors.
Cold Storage for Long-Term Assets
Cold storage refers to the method of storing cryptocurrency keys on a device that’s not connected to the internet and therefore can’t be hacked. This is usually done via cold wallets, which are essentially hard drives that never have to be connected to the internet. Retrieving the data from these devices is somewhat less convenient than with “hot” wallets, which is why they are best used for long-term storage.
Businesses should also consider using multi-signature wallets that require more than one person to access. That way, the approach to crypto treasury storage aligns with the business’s managerial structure.
Setting up A Multi-Signature Structure
A company with more than one person responsible for managing crypto assets requires a policy on how to handle these assets. For instance, most small businesses employ a 2-out-of-3 policy, in which three different individuals hold the keys to an offline wallet, and two of those are needed to access the assets.
A Multi-signature structure provides checks and balances, allowing different actors within a company to control each other’s access to common digital assets. It’s therefore not only a security measure, but an instrument of governance over company holdings.
Transparent Governance Policy
Businesses need to clearly define who’s allowed to initiate, approve, and execute transactions. It should also implement a policy of different approval thresholds. For instance, this could mean that one signature is enough for transferring small amounts, but all three are needed for large sums.
The governance policy should also clearly outline what happens in case of employee turnover. The goal is to maintain continuity of governance, even if one of the key managers authorised to make crypto payments quits or is fired. The security measures should be kept in place, in case such a thing happens.
Maintain Liquidity
However, keeping the funds in a cold wallet also has its downsides. The main one is that the funds are not accessible and therefore not liquid. One way to maintain liquidity is to keep some funds in hot wallets, which are connected to the internet and available for trade.
It’s up to the company to set a policy on how much of its assets it wants to have available for quick trades. The rule of thumb is that it should exceed 30 percent of the overall fund. The policy should also outline when the key holders are allowed to make quick trades.
Hedging Against Volatility
Cryptocurrencies can be highly volatile and react rapidly to market fluctuations. Altcoins often react to the changes in Bitcoin price and can dip or rise soon after Bitcoin does. As is the case with individual investors, companies also need to find ways to hedge against volatility by diversifying their portfolios.
The most effective way to hedge against volatility is to incorporate stablecoins into your portfolio. Some investors refuse to add stablecoins, as they don’t consider them to be true crypto assets, since their value is tied to that of fiat money. This is what makes them so useful for hedging against market volatility.
Rebalancing the Portfolio
Crypto prices can change frequently, especially for those with a complex portfolio comprising a variety of smaller altcoins. It pays off to set up a practice of rebalancing it on a regular basis. Smaller companies review their crypto asset portfolio every three months and adjust it based on market trends.
For instance, if Bitcoin rises sharply, the portfolio manager may decide to sell some of it off and earn in the process, while keeping the portfolio balanced. The process reinforces discipline by ensuring that the company keeps track of its assets and regularly monitors their market performance.
Regulatory and Tax Compliance
There was a time when crypto trading wasn’t regulated at all, since the concept was new and regulatory agencies didn’t know how to deal with it. Now that investors, businesses, and individuals widely use cryptocurrencies, governments are becoming increasingly involved in regulating the market. As tax regulations change, businesses holding crypto assets should follow suit and comply.
One of the biggest concerns for an Australian business holding crypto assets is keeping a close track of the value of the coins they own, both at the time of purchase and at the time of sale. The taxation is based on the difference between the two.
Integrate Insurance and Risk Management
There are risks associated with holding crypto, which can arise even if you’re taking all the necessary precautions. For instance, there’s a risk of hacking and theft. Crypto wallets, especially inexpensive ones, can malfunction and sometimes leave your assets stranded.
The best way to prepare for these risks is to have insurance that covers those losses. This is an additional expense for a business to cover, and it’s most often paid monthly. However, it’s worth it, as it provides peace of mind and covers losses if they occur.
Use Treasury Analytics Tools
There are tools available to track asset performance, transaction history, and counterparty risk. These can also flag suspicious activity, make the portfolio more transparent, and provide real-time insight into the health of your crypto treasure.
Advanced analytics tools aren’t something that any business manager knows how to use, and they may require the business to consult an expert or pay for their services. It’s another expense, but as the investment fund starts to yield results, it will pay for its own expansion and increased complexity.
To Sum Up
Once a company begins holding some of its crypto assets in a treasury, it must implement specific practices for managing these funds and maintaining their safety and profitability. These include methods for diversifying the portfolio and mitigating the risks that come with trading crypto assets. It’s equally important for a company to establish practices for governing and trading funds.
The businesses should make efforts to follow the market and how their portfolio reacts to changes in it. The fund needs to be balanced on a regular basis so that the company isn’t burdened with unprofitable assets and that the overall approach reflects the stated goals for investing.