According to one estimate from late 2020, more than 15,000 businesses worldwide accept Bitcoin or offer Bitcoin ATMs. And most of them are small businesses. In 2021, the crypto market experienced a significant surge and some cryptocurrencies updated their all-time highs, including Bitcoin. It attracted even more new customers and businesses into the crypto space.
Some people think that companies accept crypto only because of hype but it’s not. BitPay and Forrester Consulting’s study shows that up to 40% of customers who pay with cryptocurrencies are new customers for the business, and their average purchases are twice larger than those of bank card users. Considering crypto as a way for borderless transactions, accepting cryptocurrencies may also attract customers from new demographic groups. Besides, crypto could enable access to new capital and could make international business transactions faster and easier.
In most cases, an increasing number of companies are using cryptocurrencies for a host of investment, transactional, operational purposes. But using crypto for business is not only a host of opportunities but a frontier of challenges like price volatility, storing features, and accounting of digital assets. That’s why companies that want to adopt crypto should have a clear understanding of why they are going to accept crypto and how such actions may affect business.
Here is how some small and medium-sized businesses that already participate in the crypto deal with crypto challenges and increased interest in cryptocurrencies.
Accepting crypto using “hands-off” approach
The first thing that most business owners consider before accepting Bitcoin, Litecoin, or any other crypto is whether they are going to hold crypto on the balance sheet or simply adopt crypto for payments. The second option is one of the easiest and fastest entry points into the use of digital assets. Because you can facilitate payments just by converting crypto in and out to fiat currencies without the need to actually store or “touch” crypto. In other words, the company is using a “hands-off” approach to use crypto for payments but does not keep it on the balance sheet.
Such an option allows business owners to benefit from crypto acceptance and avoid possible issues of storing cryptocurrencies like price volatility. But enterprises adopting this limited use of crypto typically rely on third parties for providing all crypto-related transactions. A third-party vendor usually acts as an agent for the company by converting incoming crypto from customers and providing fiat to businesses.
Third-party vendors handle the bulk of technical aspects and manage compliance, risk, and control issues on behalf of the company. And, of course, they charge a fee for providing this service, so some businesses include it in the price in crypto. However, if a third party handles most of the issues, it doesn’t mean that company is absolved from all the responsibility for risk and compliance. Companies that use a “hands-off” approach still need to pay attention to AML/KYC requirements and comply with local regulations.
Dealing with crypto using a “hands-on” approach
If a company is ready to go beyond accepting crypto payments and broaden crypto adoption, then it may potentially give more benefits for a business. But it can also increase the number of technical concerns. Such a way to adopt crypto is often called a “hands-on” approach and there are two major ways on how companies can follow it. The first one is using a third-party custodian that maintains storing cryptocurrencies and provides wallet management services that can facilitate valuation and monitoring of the crypto assets. The second option is to integrate crypto into the company's own systems and manage private keys on their own.
Most companies that accept crypto in a “hands-on” way use a third-party custodian because the second method requires deeper experience since the company will have greater accountability for the work supporting its transactions. Regardless of the custodian, most companies prefer to use a multitiered structure for crypto wallets whereby “hot wallets” are used for operational purposes, while “cold wallets” are used to store the value.
For entities with high transaction volume, tracking the transaction details can be a burning question, and the reason is accounting for crypto. Accounting requires keeping detailed records of the date and time of transactions, crypto prices at a particular moment, etc. That is why some companies convert crypto to stablecoins to reduce the uncertainty related to the price volatility of most cryptocurrencies.
Some other companies do not log their gains until they sell the asset if its price increases during the reporting period. But in the case of a price drop, they register a loss. For example, Microstrategy and Square follow this way.
One way or another, using a “hands-on” approach and a specific accounting method for crypto is a lot on local regulations. This is no generally accepted accounting system for cryptocurrencies that business owners should follow. So crypto assets on the balance sheet can be managed differently in some countries. However, most companies classify cryptocurrencies as intangible assets, meaning they reevaluate the assets at the end of the reporting period.
When a company chooses to accept crypto, it can trigger changes in mindset. Accepting crypto can be a complex endeavor, so business owners need to have an implementation plan to deal with some common challenges the crypto may provide. Some companies even choose to pilot crypto acceptance for internal purposes before a public launch, especially if they want to use a “hands-on” approach. In this case, the pilot may begin with purchasing some crypto for several minor payments and track how the crypto is revalued on the balance sheet.