Cryptocurrency isn’t just for the dark web or memecoin traders anymore.

It’s here in the real world. There are Bitcoin ETFs, companies accepting it for services, cross-border payments and decentralized organizations (DAOs), all relying on crypto for daily operations.

The growing use of digital assets in business throws another layer of financial management for companies to address - crypto treasury management. Its innovative nature and volatility make it a unique challenge, even for the most experienced treasurers.

If you’re considering using crypto in your business, then you’re in the right place to learn about risk management and secure storage. Plus, we’ll show you the tools to integrate digital assets into your organization.

What is crypto treasury management?

Crypto treasury management involves overseeing an organization’s cryptocurrency and digital assets, including the operation of wallets, transactions, storage, risks and liquidity.

Traditional treasury management generally focuses on organizing a company’s financial resources and maintaining banking relationships. Crypto and blockchain treasury management differ in several ways. It requires secure management of multiple crypto wallets and transactions, along with integration into traditional financial systems. Adding to this, it is a critical process used by DAOs along with more traditional company structures.

Managing a crypto treasury is more strategic than storing digital assets. Optimizing returns and monitoring liquidity is significant to success through diversification and strategic asset allocation. Striking a balance between the two provides organizations with profitable investments while maintaining the ability to pay expenses. Poor treasury management could leave companies with devalued illiquid holdings without the cash flow to meet financial obligations.

Organizations need to build a robust method for integration between the crypto and traditional systems. A focus is the conversion of crypto to fiat and vice versa. Treasures need to consider how payments are made along with the settlement interface with the real world.

Alongside this, transparent operations and asset safeguarding must be established. Robust governance and custodial practices help to shape a sustainable and healthy financial situation. Internal regulatory oversight is paramount for ensuring this sustainability in order to protect against market turndowns and fraudulent trading which can bankrupt organizations.

Risk mitigation against the inherent volatility in crypto is a particular challenge for treasurers to stay on top of. Strong crypto management maximizes the value of digital assets while reducing risks.

Crypto treasury risk management

Tax regulations

Tax regulations are always changing, whether that’s crypto-specific or general financial requirements. Regulators frequently update guidelines as innovations like DeFi build new types of financial products with cryptocurrencies. Digital asset classification is a moving goalpost that treasurers must acknowledge. For example, financial regulators, like the SEC, are continually updating their stance on certain cryptocurrencies, which in turn affects the reporting and tax obligations.

Many states levy capital gains, corporations, and income against cryptocurrency. Updates to allowances and rates must be accounted for in digital treasury management.

Accounting standards

There is a lack of universal accounting best practices and standards for crypto assets. Companies need to develop internal policies and processes for accurate reporting and valuations. This is a unique industry challenge. Accounting boards encourage businesses to use Fair Value to measure holdings, but volatility makes it hard to reflect live valuation in reports and balance sheets.

This makes it hard to put an accurate value on companies with large crypto holdings. Microstrategy is an example of this, holding over 250,000 Bitcoins results in spikey share price, often more volatile than the underlying digital assets.

Irreversibility of payments

Crypto transactions are irreversible. Once a payment has been made, there are no systems in place to recover funds. Traditional payment methods like credit cards have guardrails built in to protect users. Extreme caution is required when finalizing crypto transfers to avoid permanent loss. Wallet address details, asset type, and chain must all be checked to ensure there are no mistakes.

Wallet security

Cryptocurrency is the most reported type of investment fraud. $5.6 billion in losses was recorded in 2023, an increase of 45% compared to 2022. A huge number of these losses come from security flaws and poor management of crypto wallets. Treasurers must implement robust security measures for funds. This includes keeping long-term holding offline in cold wallets or with a trusted custodian.

DeFiLlama lists over $10B in crypto hacks since 2016

Adding to this, wallets should be secured with multi-factor authentication and multiple signatures to make transactions. Education on fraudulent practices like phishing and spoofing should also be regularly refreshed among any treasurers and team members transacting in crypto.

Liquidity management

Before committing large sums to digital assets, treasurers must understand the liquidity profile of the assets and portfolio. Some cryptocurrencies have low market liquidity. In this case, it becomes hard to sell for more useful payment methods like stablecoins or fiat currency. If a large portion of funds are tied up in an illiquid portfolio, it becomes hard to meet expenses when cash flow becomes tight. Being forced to sell large holdings of an illiquid asset in a small market exposes investments to further risk as it can drive prices downwards.

Volatility

Cryptocurrencies are prone to extreme price fluctuations. The volatility can quickly change the liquidity, value, and collateral of an asset. A significant downturn or long bear market can evaporate the worth of a crypto treasury in days, weeks, or months.

Without sufficient reserves, an organization is unlikely to be able to weather the storm until prices are favorable. Volatility must be managed prudently, whether that’s with newer coins or bitcoin treasury strategy. Diversifying across stablecoins like USDC is one method to eliminate volatility in both long-term and short-term holdings. It is particularly useful for funds used to make regular payments, acting as a ‘digital dollar.’

Crypto treasury storage options

Software wallets

Software wallets offer convenience and ease of use, especially for small, everyday payments. They can quickly be downloaded and installed on computers or phones to send and receive crypto. They are not recommended for storage, particularly for large amounts of money or assets. As these wallets operate on an internet-connected device, it makes them susceptible to hacks. They’re convenient but less secure.

Hardware wallets

Hardware wallets are the preferred method of storage for most cryptocurrency holders. They are similar to an external hard drive or USB key, which stores and receives funds offline. They are only connected to the internet to send payments. Even in this instance, a physical button must be pressed to confirm transactions. Trezor and Ledger are trusted hard wallet providers that enable you to store private keys offline in this fashion.

Multisig wallets

Multisig wallets require multiple approvals to authorize transactions. They are popular in large corporations, DAOs, and DeFi companies to help with web3 treasury management. It stops a single person from transferring funds out of an account, distributing control across multiple parties.

"Safe" wallets are some of the most trusted multisig wallets in the industry

Multisig can be set using smart contracts in both software and hardware wallets. Predetermined protocols then dictate how transactions are authorized. For instance, a ‘2-3’ wallet shares 3 signatures but only requires 2 participants to authorize. Or a ‘2-2’ wallet requires both parties.

Cold storage wallets

For funds that are not actively managed and assets are being held for years, cold storage wallets are the most secure option. Private keys are held in wallets that are never connected to the internet. They can be more complicated to set up as you can’t use an internet-connected device to create the wallet. Or keys can be imprinted into fireproof and waterproof materials like steel. These wallets can always store and receive crypto but should never be connected to the internet until it is time to sell the assets.

Simplify your crypto treasury management with Acctual

Even for an expert, crypto treasury management is complex.

You need to:

• Ensure 24/7 security of wallets

• Stay informed of ever-changing tax regulations

• Build accounting processes

• Avoid irreversible payment mistakes

It’s why Acctual has built the best crypto treasury management solution with comprehensive tools that integrate directly into your treasure management operations. Detailed tracking is built into the seamless integration with custodians and wallets across different blockchains. Whether your crypto is stored on software wallets, multisig accounts or locked into cold storage, Actual gives you the visibility you need.

Plus, an internal transfer module simplifies your intercompany money movements. It streamlines and maintains all your transaction records. Shift digital assets between wallets or even send funds to your fiat bank account.

To receive payments, you can quickly generate invoices and get paid directly into your crypto wallet. Payments can be completed in your preferred stablecoin on your preferred network, while your client can pay in 10+ different ways. You can also have invoices paid in stablecoins and receive it directly to your bank account.

It completely removes the complexities of making crypto payments. No worries about wallet compatibility, chains or bridging tokens.

You can invoice and get paid however you want. While the payer chooses how they’d like to pay an invoice whether it’s in crypto, stablecoins or fiat money.

For example, you could send an invoice, and your client can choose to pay in US Dollars. But you can receive the payment as USDC stablecoin in a crypto wallet. All automatically.

You can even consolidate both crypto and fiat payments in one platform using the Acctual AP tools.

Try it for yourself today with a free account. It’s the easiest crypto treasury management solution for payment, invoicing and reporting.