How to Invest Your Corporate Treasury Wisely

If you’re looking for an innovative and profitable solution to invest your company’s treasury, cryptocurrencies, these digital currencies based on blockchain technology, have probably caught your attention. However, if you’re uncertain about how to use them or what the advantages and risks associated with these investments are, you’re in the right place.

In this article, we’ll guide you through the benefits of cryptocurrencies as an alternative to traditional investments, the legal and tax requirements to respect, and strategies to diversify your portfolio and reduce risks.

Cryptocurrencies are digital assets operating on a decentralized payment model, meaning they don’t depend on any central authority, like a bank or government. With over 10,000 cryptocurrencies available, including the most popular ones like Bitcoin, Ethereum, and Ripple, they represent a wide range of opportunities.

These currencies are traded on specific platforms, known as exchanges, where users can buy and sell cryptocurrencies against traditional currencies or other cryptocurrencies. Transactions are recorded in a public and secure register, the blockchain, ensuring their traceability and immutability.

For businesses, cryptocurrencies offer several advantages, such as the possibility of achieving high returns due to their potential for rapid appreciation. For example, Bitcoin’s price was multiplied by 60 in just four years, going from less than $1,000 in January 2017 to over $60,000 in April 2021.

They also allow portfolio diversification, given their low correlation with traditional financial markets, and can act as protection against crises or inflation.

However, investing in cryptocurrencies carries risks, particularly in terms of volatility. Their prices can experience significant fluctuations due to various external factors, such as news, regulations, or speculative movements.

Security is another major issue, with the risk of loss or theft of your digital assets. Digital wallets, or wallets, can be subject to hacking or other types of failures. Additionally, the legal and tax framework represents a challenge, as cryptocurrencies are regulated variably depending on the country, which may imply specific declaration and tax obligations.

Evaluating Traditional Treasury Investment Options

Before exploring the world of cryptocurrencies, it’s essential to understand the traditional treasury investment options available to businesses. These options vary in terms of duration, return, and risk. Let’s examine the main solutions:

Business Savings Accounts

Business savings accounts offer deposit remuneration through an interest rate, fixed or variable. Ideal for short-term investments, they guarantee high liquidity and total capital security. However, the return is often low, even negative, due to bank fees and inflation.

Money Market and Bond Funds

The money market, which concerns short-term debt securities trading (Treasury bills, certificates of deposit, commercial paper), and bond funds, which invest in medium or long-term debt securities (government bonds, corporate bonds, or convertible bonds), are suitable for medium-term investments. They offer a higher return than savings accounts while limiting capital loss risk. However, they have reduced liquidity and sensitivity to interest rate fluctuations.

Corporate Real Estate Investment

Acquiring or leasing real estate for professional use (offices, commercial premises, warehouses) constitutes a long-term investment option. It can offer a high return, thanks to rental income and capital appreciation. However, this solution requires a significant initial investment, management and maintenance costs, and carries vacancy or depreciation risk.

Associated Advantages and Disadvantages

It’s crucial to evaluate the advantages and disadvantages of different treasury investment options according to the company’s needs and objectives. Here’s a summary table of essential criteria:

Besides traditional options, alternative solutions exist, such as cryptocurrencies, which can offer unique opportunities but also carry specific risks.

Exploring Alternative Investments: The Role of Cryptocurrencies

Understanding How Crypto Assets Work

Crypto assets are digital assets operating on the principle of decentralization, without depending on a central authority like a bank or government. They rely on the blockchain, a public and secure register, recording all transactions. These transactions are validated by a network of computers, ensuring the traceability and immutability of exchanges.

The blockchain creates a chain of blocks through cryptographic links, guaranteeing security and resistance to cyberattacks.

Bitcoin and Altcoins as Investment Alternatives

Bitcoin, launched in 2009 by Satoshi Nakamoto, aims to establish a universal currency independent of traditional financial systems, based on decentralized consensus. With a quantity limited to 21 million units, Bitcoin is distinguished by its scarcity and value. It is traded on online platforms, where its price fluctuates according to supply and demand.

Altcoins, or alternative cryptocurrencies, offer innovations or are inspired by Bitcoin. Among them, Ethereum, Ripple, and Litecoin stand out for their specificities, such as transaction speed or security level. Their value, also subject to supply and demand, depends on the popularity and credibility of the project.

Risks and Opportunities of Cryptocurrency Investments

Investing in cryptocurrencies offers a potentially high return and the possibility of diversifying one’s portfolio. These assets allow great flexibility of transfer internationally with few constraints. However, they carry significant risks, particularly in terms of volatility and security. Regulation varies by country, adding a layer of complexity to their management.

Regulatory and Tax Framework for Crypto Investments

The regulatory and tax framework represents a crucial aspect for companies considering investing in cryptocurrencies. The legal, accounting, and tax implications can vary greatly from one country to another. It’s essential to learn about current regulations and consult experts to navigate this complex environment.

The regulation of market actors, the taxation of crypto-asset transactions, and the very definition of cryptocurrencies vary according to jurisdictions. In France, for example, companies must record cryptocurrencies on their balance sheet and submit them to corporate tax. A thorough understanding of these aspects is indispensable to secure crypto investments and comply with legal requirements.

Diversified Investment Strategies to Minimize Risks

After exploring traditional and alternative investment options, as well as the risks and opportunities linked to cryptocurrencies, we address here how to develop diversified investment strategies. The objective is to reduce risks while maximizing your portfolio’s return.

Here are the essential points to consider:

Defining an Investment Policy Adapted to the Company

Portfolio diversification begins with establishing an investment policy aligned with your company’s needs. This policy includes rules and criteria defining investment decisions according to the company’s objectives, risk profile, budget, and investment horizon.

It must be in harmony with the company’s overall strategy and reflect its vision, mission, and values. Regular revision is necessary to adjust to market changes and the company’s evolving needs.

For example, a company considering investing in cryptocurrencies should first determine the amount, duration, and distribution of its investment, as well as the selection, monitoring, and exit criteria for crypto assets.

The Importance of Asset Diversification

Diversification, or the distribution of assets between different investment categories with varied characteristics and risks, is crucial. It aims to decrease the portfolio’s total risk by attenuating the effects of a negative or positive fluctuation of a specific asset category.

It also offers the opportunity to seize the advantages of various markets, thus ensuring a more constant return. Particular attention must be paid to the correlation between asset categories, i.e., their fluctuation relationship. Low correlation between them ensures effective diversification. Cryptocurrencies, for example, generally show low correlation with traditional financial markets, making them interesting for diversification.

Using Cryptos as a Controlled Portion of the Portfolio

Integrating cryptos in a controlled manner into your portfolio, by limiting their proportion, allows not to concentrate all risks in the same place. The balance between the potential return of cryptocurrencies and the acceptable risk level depends on your objectives and risk tolerance. Although there is no universal rule, an allocation of 5% to 10% of capital is often recommended.

It’s also crucial to diversify within cryptocurrencies themselves by selecting solid, innovative, and complementary projects.

Considering Investment Horizon and Asset Liquidity

The investment horizon and asset liquidity are determining factors in choosing investment categories and portfolio distribution. A longer investment horizon generally allows tolerating more risks and investing in more volatile assets like cryptocurrencies. Conversely, a short horizon favors security and liquidity. Your portfolio must therefore be adjusted according to your liquidity needs and projects at different terms.

In conclusion, portfolio diversification is an essential approach to minimize risks while optimizing the return on your corporate treasury investments. It involves defining an adequate investment policy, distributing assets between different categories, judiciously integrating cryptos, and considering the investment horizon as well as asset liquidity. Following these principles will allow you to benefit from cryptocurrency advantages while limiting the risks associated with their volatility and their legal and tax framework.

Conclusion

This article has explored smart corporate treasury management via cryptocurrencies. We evaluated traditional and alternative investment methods, while highlighting the risks and opportunities associated with cryptocurrencies. The importance of portfolio diversification was discussed, taking into account key factors such as investment policy, correlation between assets, distribution, investment horizon, and liquidity.

It appears that cryptocurrencies can represent an innovative and advantageous option for corporate treasury management, provided certain rules are followed and expert guidance is obtained.

For those wishing to deepen their knowledge of cryptocurrencies and benefit from personalized support for their investment strategy, we recommend considering a PSAN-registered platform. As reference platforms in France for buying, selling, and managing crypto assets, they offer personalized services meeting the needs of individuals, businesses, and professionals.