By Peter Curk, the CEO of ICONOMI
Financial management within the construction industry has always been a matter of significant complexity. It’s not just a case of handling the day-to-day issues of profit, loss, cash flow, and funding faced by the majority of businesses. There’s the problem of thin margins, high up-front costs, credit access limitations, and for many, the need to deal in multiple different currencies. As such, a healthy investment portfolio is imperative. So, why are so many construction companies moving into the overtly risky domain of cryptocurrency investment?
The increasing appeal of crypto investment
Cryptocurrency investment is known for being high risk. But it’s also known for potentially lucrative returns if it’s managed carefully, you invest through the right platforms, and you have the right security protocols in place. And it’s this that has led to a significant growth in institutional investment in recent years. In 2024, the number of businesses investing in Bitcoin flourished, with realised capitalisation increasing by $300 billion. While Coinbase research suggests that 64% of institutional investors plan to increase their crypto allocations over the next three years. Construction companies are very much among the number. But why?
Why is crypto investment right for construction firms?
Despite the risk, for most construction companies, there are multiple reasons why crypto investment simply makes sense as part of a diversified investment approach.
Diversification
It’s not been a great few years for cash and fiat currencies, with low interest rates and inflation limiting their performance. So, the low correlation between cryptocurrencies and traditional assets, means that crypto can offer a hedge when stocks underperform. Even a small allocation of crypto assets can potentially reduce your total portfolio volatility, while improving risk-adjusted returns, making it a sensible investment option for construction businesses.
Asymmetric return potential
A small allocation of crypto assets can significantly boost returns without materially increasing downside risk, thanks to their high upside potential. As long as the loss is capped at the small allocation, investment failures don’t have to hit hard. While success can deliver enormous returns.
Exposure to emerging technology
Even if they’re not investing directly in crypto assets, some construction firms are adopting blockchain-based platforms to support corporate growth. Whether it’s smart contracts for automating agreements with subcontractors/suppliers, or decentralised finance for streamlining payments and reducing fraud. Crypto investment provides gateway access to these and other emerging technologies.
Institutional adoption
Even three years ago, investing in crypto meant moving away from the familiar. But we now have major financial institutions, such as BlackRock, Fidelity, and Goldman Sachs, offering crypto-related products or services. This not only makes crypto feel safer, it makes it more accessible for business investors.
Continuous trading
Crypto never sleeps. Unlike traditional stock markets, the borderless crypto space is always active, enabling portfolio management at any time.
So, as cryptocurrency becomes increasingly attractive to construction business investors, more are asking the question of how and where to start.
How can construction businesses begin investing in crypto?
While crypto investment is so much more accessible than it once was, starting out is still so much more involved than deciding between Ethereum and Bitcoin.
Compliance is a must. Although the UK doesn’t currently have cryptocurrency regulations in place they are due to be rolled out by the Financial Conduct Authority (FCA) next year, so investors need to be prepared for changes. In the meantime, however, there are other areas of compliance to be getting on with. There’s the need to meet AML/KYC requirements and tax obligations, and you must get to grips with securities classification (especially for tokens). It’s a good idea to incorporate compliance into your onboarding and reporting processes. In most cases, it’s sensible to seek professional guidance to support you through the more complex processes.
While a contemporary crypto company devised for novices can help you navigate the early days of crypto investment, it’s also important that you focus on inhouse education. If you’re going to make fully informed decisions about your investments, you and your team need to be able to understand everything that is involved. If you choose well, this might be something that the crypto company you work with can support.
After that, investment infrastructure needs to be your priority. There’s no longer a need for most companies to invest in their own blockchain development team. Platforms, like the company I run, can provide a comprehensive yet intuitive infrastructure for you to build upon. The only area that may give you pause is that your crypto activity must align with your accounting, tax, and treasury systems. So, integration into existing ERP systems may require the use of specialist software, such as Bitwave or TaxBit.
Lastly, there’s the matter of security. The crypto space is notoriously prone to the actions of bad actors. You need the right security protocols to counter this. For some, that will mean institutional wallets with layered permissions. For others, hardware wallets and multisig. You might also use third-party custodians, which your infrastructure provider can support you with.
For construction companies, treasury diversification is probably the greatest appeal of crypto investment. The fact that it eases the process of working on international projects and payments, removing the stresses and expense of currency exchange is a real bonus. As is the fact that it can also help with futureproofing the business, through access to emerging technology. But with new regulations in the pipeline and greater accessibility, crypto assets hold great potential for all businesses. You just need to know how to do it properly.
