With Covid19 decimating many businesses, especially small businesses and soloprenuers, it’s time to think about business asset diversification.
How can you leverage Cryptocurrencies / Bitcoin to keep your business afloat? We’ll explore five ways:
- Business / Corporate Treasury Hedge
- Asset Growth / Source of Funds for New Business Operations
- Inflation Hedge
- NFTs as a Product Offering
- Accept Payments in Crypto Currencies / Bitcoin
Before we move on, let me describe the backdrop of asset diversification and the troublesome process of getting cryptocurrencies into your business account.
Asset Diversification Using Crypto & Bitcoin
You might have heard asset diversification is a good thing, with assets spread out among stocks, real estate, precious metals, and bonds. But with the massive money printing by the Federal Reserve, the dollar is expected to lose significant value over the coming years. Some experts even expect the dollar to be absolutely worthless. While that is an extreme view, it’s not outside the realm of possibility and so business owners need to be prepared.
Get Bitcoins to Your Business
Bitcoin and “alt coins” (newer coins that serve specific niches like faster payments or smart contracts) are now an asset class. Businesses can own stocks, other companies, real estate, and other assets, just like people. It’s hard to find crypto exchanges that will open an account for small businesses, so we need to find some workarounds first. One way is to create a separate crypto wallet just for the business and transfer your personal bitcoins to the wallet. The problem with this method is there is no paper trail tied to the business… it’s just you claiming the business owns the bitcoin with a mark on the assets sheet of the business.
The second way to get bitcoins to your business is don’t do it at all and allocate some of your personal bitcoin to your business and plan to transfer it to the business some time in the future when the Bitcoin ecosystem is more mature. You can create a separate “portfolio” within a Coinbase account and give it a name like “Business Portfolio.” That way you can allocate funds and track performance.
A third way and perhaps traditional way of acquiring an asset is to buy it on the open stock market. If your business has a brokerage account, you purchase the Grayscale Bitcoin Trust (Symbol: GBTC). It trades on the “over-the-counter” system, not on the NYSE or Nasdaq, but it can be purchased like any other stock. Eventually Bitcoin ETFs will come to market to offer a more traditional financial instrument.
1. Business / Corporate Treasury Hedge
Having a mix of treasury assets helps offset risk. If the dollar goes down in value, the price of Bitcoin and cryptocurrencies may go up. The opposite may be true. Since cash & cash-equivalents allow you to pay your expenses and keep your operation running, you need funds available. As Bitcoin stabilizes over the coming years, it may be considered a cash-equivalent asset. In the future, you may be paying expenses with cryptocurrencies.
2. Asset Growth / Source of Funds for New Business Operations
Sometimes a business can increase in value just because the assets it holds increase in value. Without adding one more client or selling another widget, a company’s value can increase 2x or more simply by holding assets like gold, real estate, and cryptocurrencies. I want my horse in the race.
Elon Musk recently added Bitcoin to the asset sheet of Tesla. I like to think he’s a fairly smart person. I’ll dip my toe in the water too. Since Bitcoin surged in value after he purchased it, Tesla is worth millions more WITHOUT selling any more vehicles.
With inflated values for liquid assets like cryptocurrencies, you can liquidate a portion of the asset and use it to grow your business by buying equipment, hiring more staff, and adding offices.
3. Inflation Hedge
Since its creation, the U.S. dollar has only gone down in value over time. My business checking account requires $2,000 at all times to avoid fees. While I may not lose the nominal value over time, the purchasing power will drop significantly. I trade this balance in my account for free checking.
The Federal Reserve targets around 2% annually for inflation. The reality is actual inflation has been much higher in large-ticket items like real estate. I remember looking at real estate in Austin just a few years ago. A property I saved has doubled in just a short time. Certainly not 2% inflation. Also, think of the trend of increasing minimum wages. While officially, the rate is around $7/hr, many have called for $15/hr and many private companies have already implemented $15/hr minimum wages. Not 2% inflation.
Because Bitcoin and some other crypto currencies have a cap on the amount of coins in circulation, it guarantees that the value cannot be diminished by irresponsible governments printing money or making poor policy decisions.
So, leaving cash in a business account should be used for paying expenses and strategic matters like waiting for a market downturn. Otherwise, it’s just burning paper.
4. NFTs as a Product Offering
Amazingly, you can use blockchain technology to create tokens to prove ownership of assets like artwork. Blockchain provides a digital record of asset ownership history, taking the risk out of purchasing high-priced assets. As a business, you can offer digital products and even real-world products as Non-fungible Tokens, or NFTs. Considering the hype around NFTs right now, you can probably over price items you sell because you offer them as NFTs, since the sentiment is that NFTs will increase in value in the future. Creating and buying NFTs are complicated, but this CNBC article explains the details.
5. Accept Payments in Crypto Currencies / Bitcoin
If you have cryptocurrency, you might want to pay for things with cryptocurrency. Instead of going through the hassle of converting the cryptocurrency to U.S. Dollars and then paying for things, why not just pay directly with the cryptocurrency? PayPal now lets its users pay for items with cryptocurrency. I think this is a sea change event given how large the PayPal ecosystem is. Or, maybe as a business owner you think cryptocurrency will increase in value and you just want to accept the cryptocurrency directly.
It’s certainly a mind-shift when pricing things… is it worth $50,000 U.S. Dollars, or is it worth 1 Bitcoin? Only you can decide.
Tools to Track Cryptocurrencies
If you are going to use cryptocurrency in your business, you’ll probably want a tool to keep track of and the market sentiment since it is a volatile asset class.
I use TradingView to track cryptocurrencies and get sentiment from others as well and detailed technical charts. I set up a free account and you can too.
I think we are at a tipping point in the value of Bitcoin for businesses and entrepreneurs. It will be a rough ride and too much money in the system can distort the true value of assets. That’s why I suggest we dollar cost average into cryptocurrency and take a modest approach.
There’s no way to properly have a Bitcoin price prediction in 2021, because cryptocurrencies don’t have intrinsic value like physical gold, silver, and real estate. If you lose your digital wallet keys, governments ban Bitcoin, or all the blockchain servers go down all cryptocurrencies can become worthless.
Are you going to live a Bitcoin lifestyle in 2021? Will your business take part in the Bitcoin revolution and alternative cryptocurrency rush? Let me know in the comments.