It’s time for CFOs to get a grip on Cryptoassets

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What do cryptoassets mean to you?

To a digital artist, a cryptoasset is the title deed to their original work that can be bought and sold and provide them with an income.

To a marketer, cryptoassets are a way of holding their digital audience by giving them something of value in exchange for their engagement.

To a supply chain professional, cryptoassets are the digital title deeds to real-world goods, bursting with data about the journey those goods have taken from creation to consumer.

To the UK’s tax authorities, “Cryptoassets (also referred to as ‘tokens’ or ‘cryptocurrency’) are cryptographically secured representations of value or contractual rights that can be transferred, stored or traded electronically.”

Cryptoassets from Bitcoin to the Bored Apes Yacht Club were once the preserve of early adopters and crypto enthusiasts, but they are becoming firmly established in the mainstream. Until relatively recently many CFOs shied away from them due to fears about volatility, cyber risks, board risk aversion, and regulatory concerns.

But cryptoasset knowledge is no longer just a specialist field. Understanding the risks, pitfalls and benefits will be key for the next generation of CFOs.

NFTs, tokens, and cryptocurrencies

Let's bust some jargon. The term "cryptoassets" encompasses a very broad spectrum of digital things. The first cryptoasset was Bitcoin. One Bitcoin is worth one Bitcoin. It doesn’t matter which one you spend as they are all the same. This is fungibility, a property shared with the banknotes in our pocket and many of the thousands of cryptocurrencies that now proliferate.

Cryptoassets are also known as ‘tokens’. They are not just coins, but code and they have special properties on their individual blockchains. In most cases, a token is the means of payment for executing a transaction on its blockchain.?

However, a token can also hold extra information. The first experiments around this emerged in 2017. A studio released 10,000 pixelated artworks called ‘Cryptopunks’, each one a coin with individual characteristics. They caught the imagination and have been enthusiastically traded ever since. One Cryptopunk was sold at Sotheby's in 2021 for $11.8m. Although all of these were the same type of token, they could not be exchanged one for the other. They were non-fungible. The term Non-Fungible Token was adopted later that year with the launch of the Cryptokitties game, and the NFT was born.

How are businesses using cryptoassets?

Depending upon the nature of the asset, there are several different ways in which businesses are holding and using these digital tokens.

Cryptocurrencies enable fast and traceable cross-border payments, and high-value NFT and cryptocurrency portfolios are also emerging. Cross-border crypto payments are particularly useful where there are delays and high charges for traditional bank-to-bank transfers to and from different economies and jurisdictions. Using Stablecoins, cryptocurrencies linked to real-world asset value such as the US Dollar avoids losses from volatility. Central Banks around the world are considering their own stable digital currencies to harness this feature.

NFTs are also being widely used to represent real-world assets in the supply chain, but in this case, the NFT does not have a value in and of itself and is simply a mechanism for data capture. NFTs in the supply chain give each item a verifiable identity and collect and store data about it. This data capture is a vital tool for FP&A, exposing new data points to measure everything from pricing to carbon emissions and to verify certifications of raw materials and processes. It’s also a boon for product pricing, adding value for the consumer and protecting intellectual property from counterfeiting.

What do CFOs need to know?

Cryptoassets may be new, but all the usual regulations still apply

Tax jurisdictions around the world are managing reporting based on the nature of the asset. In many, including the UK, US, and most of Europe, cryptoassets are predominantly treated in the same way as any intangible asset investment, with gains and losses realized at each transaction. In practice, this means that every single payment made using a cryptocurrency, even for goods and services, is asset disposal and is taxed as such.?

It’s important to understand the specific treatments that apply at any time in the territories where your organization operates. Remember also that the transparency of public blockchains means that tax authorities can trace every transaction themselves. It’s not something to be taken lightly!

Cryptoasset investments are volatile

Most cryptoassets are not linked to any sovereign monetary system, so their behavior can be highly unpredictable. Asset values are driven by many different factors, from utility and technical soundness to fashion and hype. The CFO must understand the market to support decision-making.

Cryptoassets are your ticket to the Metaverse

The current hype around digital worlds is something that cannot be ignored. If your organization wants to explore the opportunities and markets offered by this medium, cryptoassets are a vital and central part of brand engagement.

Is your business exploring the potential of cryptoassets? Tell us your story in the comments.

This was the third article in my latest series "Frontier Technologies for Finance". You can read the previous ones below. Remember to click subscribe to be notified about future articles.

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Why CFOs are well-placed to understand Blockchain and Distributed Ledgers

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Anders Liu-Lindberg ?is the co-founder and a partner at the?Business Partnering Institute ?and owner of the largest?group dedicated to Finance Business Partnering ?on LinkedIn with more than 10,000 members. I have ten years of experience as a business partner at the global transport and logistics company?Maersk . I am the co-author of the book “Create Value as a Finance Business Partner ” and a?long-time Finance Blogger ?on LinkedIn with 65.000+ followers and 150.000+ subscribers to my blog. Recently I became an advisory board member at?Born Capital ?to help identify and grow the next big thing in #CFOTech.