By Peter Curk, CEO of ICONOMI
Cryptocurrency investment has always been seen as too risky for businesses. Although potentially lucrative, it’s inherently volatile, with significant fraud potential, meaning that most businesses have preferred to put their money elsewhere. Why, then, did institutional investment in Bitcoin surge last year? With realised capitalisation increasing by $300 billion, and Coinbase revealing that 64% of institutional investors plan to increase their crypto allocations over the next three years, it seems that change is afoot. The big question is why.
Why are more businesses prepared to accept the risk of crypto investment?
Although cryptocurrency is beginning to creep into more mainstream investment, it undeniably carries a high level of risk. Its volatility far exceeds any other investment option, meaning that it’s very easy to lose more than your initial investment, and far more than you can afford. However, for many businesses, incorporating crypto into a diversified investment strategy can offer compelling advantages.
The advantages of diversification
Cryptocurrencies often exhibit low correlation with traditional assets, such as stocks and bonds. This means that even a modest allocation of crypto can potentially reduce overall portfolio volatility, which can also enhance risk-adjusted returns. When a crypto asset’s price movements diverge from equity markets, they can act as a potential hedge during stock market downturns. And when cash and fiat currencies experience a period of low interest rates and inflation, crypto can continue to perform.
Asymmetric return potential
Cryptocurrencies offer notable upside potential with relatively limited downside exposure when held in small allocations. Even a modest investment can meaningfully enhance overall returns. If the asset underperforms, the loss is contained in the small portion allocated. But if it performs well, the potential gains can be substantial. So, if managed sensibly, the risk-reward profile is attractive.
Exposure to emerging technology
No end of transformative technologies have emerged from the crypto space. From blockchain, to smart contracts, decentralised finance (DeFi), tokenised assets, and Web3 infrastructure. And they’re all reshaping the digital ecosystem. For businesses looking to tap into cutting-edge tech advancements beyond traditional equities, the crypto space offers a wealth of potential.
Institutional adoption
Until recently, cryptocurrency was very much an outlier, but it’s moving closer to the mainstream every day. Whether it’s BlackRock, Fidelity, or Goldman Sachs, some of the biggest institutional investment brands have begun offering crypto-related products and services. This hasn’t just increased market accessibility, but is beginning to increase the legitimacy of the crypto space. When coupled with the introduction of new regulatory frameworks, such as the EU’s Markets in Crypto-Assets (MiCA) regulation and the proposed Financial Conduct Authority (FCA) regulation in the UK, this is contributing to the perception that cryptocurrency is safer than it once was.
Continuous trading
Unlike every other stock market, the crypto markets never close. So, wherever they are, businesses can manage their portfolios at a time that suits them.
In summary, then, there are multiple reasons why cryptocurrency is emerging as an increasingly attractive option for traditional business investors. The next question is, how can businesses begin developing a strategic approach to crypto investment?
How businesses can develop a crypto investment strategy
As you’d expect, there’s a lot more to crypto investment than deciding which currencies to work with. A strong strategy is required to ensure that your crypto activity also aligns with your corporate goals and regulatory obligations. This means focusing on a number of key areas.
Compliance
Although the UK doesn’t have set cryptocurrency regulations in place at the time of writing, it’s no secret that the FCA is planning to introduce legislation next year. Both crypto companies and businesses that invest in the crypto space need to be prepared for that time. And in the meantime, there are other areas of compliance to contend with. There’s the matter of AML/KYC requirements, securities classification (especially for tokens), and tax obligations. Businesses also need to incorporate compliance into their onboarding and reporting processes. It’s a complex area, and most businesses will require professional guidance to support them through the process.
Education
As well as seeking professional support in the short term, businesses also need a long-term strategy for the education of all team members likely to be involved in the management of crypto assets. If you’re going to be able to make informed decisions, you have to understand the arena in which you’re working.
Infrastructure
The good news is that these days, businesses no longer need to invest in a blockchain development team to get started in cryptocurrency. My business, and others like it, provide comprehensive infrastructure services for businesses to tailor to their own needs, whether for in-house use or white label purposes. However, any crypto activity will always need to align with your accounting, tax, and treasury systems. This might mean the need to onboard specialist software, such as Bitwave or TaxBit, to enable the integration with existing ERP systems.
As always, there’s also the need for a watertight security system. In most cases, this will mean using either wallets with layered permissions, hardware wallets and multisig, or third-party custodians. Again, this is something that an existing infrastructure provider can support you with.
Where are we most likely to see crypto adoption?
It’s not easy to gain a comprehensive view of the entire crypto landscape, but activity within my business points to notable growth in two particular sectors: construction and accountancy.
In the construction industry, crypto assets are primarily valued for treasury diversification. However, they also offer practical benefits, especially for international projects not least by reducing friction in cross-border payments and minimising currency exchange issues. Additionally, investing in emerging technologies, such as blockchain, can help futureproof businesses in what is set to be an increasingly digital economy.
For the accountancy sector, it’s easier to see the appeal of crypto investment. It not only offers strong growth potential, but there is also increasing demand from clients. Portfolio diversification will also always be appealing for the financially savvy. As such, cryptocurrency presents opportunities that benefit both accountancy firms and the clients they serve.
The crypto space is changing. Regulation and mainstream adoption were never on the agenda, but they’re nevertheless happening. And in the process, they’re making crypto both safer and more appealing for both individual and business investors.
About the author
Peter Curk is the CEO of ICONOMI, a leading platform in digital asset management. With a background in finance and blockchain, Peter is passionate about making crypto investing accessible and easy for everyone. Under his leadership, ICONOMI has grown into a trusted name in the industry, offering innovative solutions for individuals and institutions alike.
