Is Cryptocurrency Right for Your Business?
Last month, I wrote about the metaverse. As I mentioned in the article, I am not an expert in the metaverse, but I need to better understand it as we hear more and more about it in our industry. The same is true about cryptocurrency. There is a general assumption that the way things will be purchased in the metaverse is via cryptocurrency. At the same time, we read in the news of investors like Elon Musk investing Tesla’s money into crypto and making significant profits. Even the Harvard Business Review recently explored cryptocurrencies in the November/December 2021 issue.
Trying to understand cryptocurrency can be very confusing, much like trying to learn about stocks for the first time. Many people have a general understanding of stocks, but few can discuss the details of why stock prices go up and down and the intricate operations of the stock market. So, let’s take a moment and understand the basics of cryptocurrency.
Crypto is a digital currency. There is no physical object that represents crypto as there is with government-issued currency. So, it is similar in comparison to a bank account, where you likely use your debit card and not physical cash, but differs in the sense that you can not ever get “physical crypto” like you can get cash. Another significant (and possibly scary) difference is that it is not backed up by any government or other entity. Much like the stock market, you are making an investment, and you are at risk of losing all of your money or making money.
I highly recommend checking out HBR’s case study in the edition referred to above. The case study raises some of the very important financial questions that come into play when considering whether or not to accept crypto or to invest company funds in it. Perhaps the biggest challenge right now is that, as the case study points out, there is no U.S. Generally Accepted Accounting Principles (GAAP) guidance on how to account for crypto. There are, however, several current national and international movements that are looking at how to regulate the crypto market. The IRS does say that any profit made from buying and selling crypto should be included in tax calculations.
I think the most important question asked in the case study is, “Why would we want to accept Bitcoin?” In our industry, the only group that I can think would have a reasonable answer to that question would be the residential installers. Corporate, Education, House of Worship and other verticals are well settled into the traditional cash flows and accounting. However, residential customers, especially the very high end ones, may be interested in paying with crypto. In that case, the companies servicing these customers would have to decide if it made sense for their business to accept that type of payment.
I still think that at the moment, very few (if any) firms would take a customer up on this desire. Any exchange of service and goods for compensation needs to be fair and decided in advance. No company would ever agree to take any number of stocks in exchange for their goods and services and take possession of those stocks thirty days down the road. They cannot guarantee what the value of that stock will be in the future! Indeed, this does not even need to be thirty days away. No company would ever do this with stock because in the time between a transfer of stock, the value can increase or decrease significantly.
Perhaps there would be a future where AV companies are putting on events in the metaverse. In the metaverse, the organizers of such events (think a concert in the metaverse) may take payments in crypto and desire to pay out in crypto. In this case, a forward-looking company looking to get a lead in this market may choose to accept this form of payment. At the moment, there seems to be no strong business case or benefit for a traditional company in the AV market to consider accepting crypto payments. Companies that believe in a future of the metaverse, however, may want to start thinking about how they would get paid and how they would account for and manage these payments.