Financial aspects of crypto-assets in business

Blockchain is one of the most discussed technological revolutions after AI. Even if those are not recent inventions, their deployment is quite recent. Use Cases spread out across many sectors: from commodities with Everledger to Energy with Brooklyn Microgrid - the applications for blockchain are plentiful. Based on Blockchain, Bitcoin brought a new range of products to light. Today, the crypto world has become so large that we can hear people speak of the Token Economy.

Startups don’t lose time in stepping in the breach: with this parallel economy still developing, the needs are growing fast. Tech companies meet Finance companies and are raising a great deal of money. Coinbase occupied center stage with its IPO in April 2021 and paved the way for many other fintech companies which also intend to make it to the big league.

Mining companies were the first ones to succeed thanks to Bitcoin’s growth. However, operators have quickly diversified, and exchanges became more and more popular. Allowing the retail market to access crypto investments, exchanges arrived at the time when cryptos grew exponentially and thrived. Along with the expansion of the crypto-spheres new needs emerge.

To give an example, we can talk about Flowdesk which provides several services to professionals like brokerage and market making. Brokerage in the crypto-sphere can be assimilated to OTC (Over The Counter, editor’s note). It can be quite difficult to buy many tokens in a short time because of the lack of liquidity, the high volatility and the specificity of decentralized systems. That’s why brokerage is crucial for whoever wants to buy more than $1 million worth of tokens. It prevents slippage, shortcuts the lack of efficiency and avoids friction costs.

Investors are not the only ones who will need some technical answers to their needs. Even token issuers are looking for professionals to gain efficiency with their tokens. That’s the mission of the market maker: grow liquidity on tokens on the secondary market.  Flowdesk aggregates the data of more than 30 exchanges to manage the selling and buying of its clients’ tokens.

Those two activities are well known in the traditional financial industry, but the specificity of decentralized finance justifies the growth of new fintech. Furthermore, with Defi, innovations are not big revolutions but the adaptation of traditional financial services to crypto finance. More and more we see loans, insurances and other products being commercialized.

Nevertheless, the sector is still waiting for global companies to join in. Notwithstanding several announcements from Walmart to Tesla including City, there is no widespread adherence to cryptos. One of the first ideas to introduce crypto currencies in big companies was to manage Forex risks. It is no coincidence if the states experiencing a boom in crypto investment are those where the legal ledger is volatile and at the whim of the government. For mass retail companies there is a major challenge when managing Forex. That’s why maintaining a crypto asset portfolio could be a good idea.

Mind you, that’s not as simple as it seems. Treasury obeys several rules, namely accounting rules among others. Crypto assets are not equivalent to cash. They cannot be accounted in the same way. According to US accounting rules (US GAAP), cryptos are considered at best as an “indefinite-lived intangible asset”. What does it mean in practice? Those assets are too volatile and risky to be held in a company treasury. It has to be an investment. But this is no satisfactory from a crypto professional point of view. Crypto-assets were not a thing when accountability rules were forged, assimilating them in such a category of investment isn’t appropriate. Cryptos have their own rules and their own inherent risks. It makes sense to isolate them from treasury risks because of the actual nature of the market but they should be sorted in their own investment category.

At this point, when a company invests in cryptos, it will show its gains as a goodwill growth and its losses as a fall of its fair value. However, when addressing tax authorities, one will only declare the gain and losses when they resell their cryptos. All those disparities explain why it is still difficult for big companies to invest in cryptos. Although, it did not stop them from leading their own crypto-projects as we can see with Casino group’s Lugh or Facebook’s Diem.

What conclusions can we reach? Adapt.
Businesses thriving today are those which understand the technology, know their own needs and listen to their market. More and more rules will emerge in parallel with the market’s growth. It will be harder to get bigger as a free spirit, frameworks get defined in the shadows of the old world and while the process is still ongoing, many companies failing to adapt will die. But it is also comforting to know that the crypto-sphere is becoming more secure. It allows more collisions with the traditional world and the real economy, offering a new universe of possibilities to resilient businesses.

About Flowdesk
Founded in April 2020, Flowdesk is one of the major market-makers and digital asset liquidity providers in Europe, and the first to be regulated in France. Developing a complete trading infrastructure using the latest cloud technologies and developing proprietary tools, Flowdesk proposes market-making, best execution and brokerage services in the best conditions by accessing the global crypto liquidity. Only one year after its creation, the company already counts 15 collaborators, and continues its expansion by proposing specialized and regulated services to answer institutional investors’ needs.