Digital Assets and Corporate Treasury: How Finance Leaders Should Be Thinking

A Question Finance Leaders Can No Longer Ignore

The conversation about digital assets in corporate treasury was, for most of the period from 2017 to 2020, a niche interest confined to crypto-native companies and a small number of technology company CFOs. The announcement by MicroStrategy in August 2020 that it had adopted Bitcoin as its primary treasury reserve asset changed the nature of that conversation. Suddenly, a publicly listed operating company was arguing, in detail, that holding cryptocurrency was a sound treasury management decision for a corporate rather than a speculative position.

Whether you agree with that argument or not, the fact that it has been made — and that other companies have followed a similar path — means that CFOs and finance directors are now regularly asked by boards and investors for their view on digital assets in treasury. Saying "we don't have a policy on that" is no longer a satisfactory answer. Finance leaders need a considered, well-reasoned position, whether that position is zero exposure, operational use only, or strategic allocation.

This article presents all three positions honestly, covering the reasoning behind each and the financial, accounting, and governance implications. It does not advocate for any particular approach. The correct answer for a specific business depends on its risk appetite, its shareholder base, its regulatory context, and the CFO's honest assessment of whether the return opportunity justifies the complexity and risk. For most conventional businesses, the answer is that it does not.

The Three CFO Positions

Position 1: Zero Exposure

This is the position held by the large majority of UK corporate finance leaders, and it is a defensible, well-reasoned position rather than a default of ignorance. The arguments for zero exposure to digital assets on the corporate balance sheet are as follows.

The IFRS accounting treatment creates asymmetric P&L volatility. Under current IFRS, most cryptoassets are classified as intangible assets under IAS 38, measured at cost less impairment. This means mark-to-market gains are invisible in the P&L — you cannot write up the value of a Bitcoin holding if the price rises — but mark-to-market losses must be recognised when the recoverable amount falls below the carrying value. For a business that holds 1% of its cash in Bitcoin, a 50% decline in Bitcoin's price (which has occurred multiple times in its history) creates an impairment charge that may be material relative to the business's operating profit, creates noise in management accounts, and requires explanation to the audit committee. The asymmetric treatment is not intuitive and is not well understood by most business stakeholders.

Counterparty risk on crypto exchanges and custodians is not equivalent to counterparty risk on regulated banks. The failures of FTX, Celsius, and BlockFi demonstrated that even large, apparently well-capitalised crypto firms can become insolvent suddenly, with customer assets at risk. Regulated bank deposits benefit from the FSCS up to £85,000 and from prudential supervision that is materially more robust than the oversight applied to most crypto custodians in 2024.

Fiduciary duty considerations mean that investing corporate cash in a highly volatile, poorly regulated asset class requires active board approval and a clear investment mandate. Without these, the CFO is taking a governance risk as well as a financial risk.

Position 2: Operational Use Only

The operational use position holds that the business should not hold digital assets as investments, but may hold them temporarily in the course of operational activity. The most common examples are: using stablecoins for cross-border payment settlement (where digital settlement is faster and cheaper than correspondent banking); holding regulated payment tokens for smart contract obligations with counterparties who prefer on-chain settlement; or receiving customer payments in stablecoins and converting to fiat immediately.

In each of these cases, the digital asset is held for the shortest possible period, is converted to fiat at the earliest opportunity, and the exposure at any given time is limited to the float required for operational purposes. The position is essentially: we will use the technology when it is operationally advantageous, but we will not speculate on the price of crypto assets.

This is a coherent and increasingly common position among fintech businesses that interact with crypto-native counterparties or payment rails. It requires a clear operational policy (maximum holding period, maximum holding amount, permitted asset types — typically stablecoins only), a compliant custodian, and proper accounting treatment for the assets held.

Position 3: Strategic Allocation

A minority of companies hold Bitcoin, Ethereum, or other crypto assets as a deliberate treasury allocation, typically 1 to 5% of total cash. The arguments made for this position are: digital assets are a potential inflation hedge and a store of value with limited correlation to conventional financial assets; a small allocation provides optionality on a technology that may become significantly more important in global finance; and the signalling effect to crypto-native customers and partners of holding a crypto treasury position has commercial value.

The arguments against this position are: the inflation hedge argument is empirically weak (crypto assets have been highly correlated with risk assets during recent inflationary periods, declining materially during 2022 alongside equities); the "uncorrelated asset" claim is difficult to sustain historically; the accounting treatment creates P&L volatility disproportionate to the size of the holding; and few institutional shareholders of listed companies have mandates that include crypto assets as an acceptable treasury holding.

IFRS Accounting Treatment

The accounting treatment for cryptoassets under current IFRS is one of the most significant practical barriers to corporate treasury adoption. The IASB has begun a project on crypto asset accounting, but as of April 2024, there is no dedicated IFRS standard. The default treatment under existing standards is as follows.

Most cryptoassets do not meet the definition of cash or cash equivalents under IAS 7, because they are not widely accepted in settlement of obligations and are subject to significant value changes. They are not financial assets under IFRS 9 because they do not represent a contractual right to receive cash. The remaining category is intangible assets under IAS 38, and this is the treatment applied by most companies. Under IAS 38, intangible assets are measured at cost (the purchase price), with mandatory impairment testing when there is an indication that the carrying value exceeds recoverable amount.

The asymmetric treatment is the critical accounting issue for treasury CFOs. If you purchase Bitcoin at £50,000 and the price rises to £80,000, no gain is recognised in the P&L (under the cost model). If the price subsequently falls to £30,000, an impairment charge of £20,000 is recognised (the fall from £50,000 purchase price to £30,000 recoverable amount). If the price then recovers to £60,000, the impairment cannot be reversed under IAS 38. The accounting therefore systematically understates the value of holdings that have recovered in price and creates mandatory P&L charges during price declines. For a small holding, this is manageable. For a material holding, it is a significant earnings management issue.

What a Corporate Treasury Policy Must Address

Any business that holds or contemplates holding digital assets must have a board-approved treasury policy that explicitly addresses the digital asset position. A treasury policy that is silent on digital assets is inadequate even for a zero-exposure business, because it implies no governance decision has been made. The policy should address the following.

• Permitted holdings: which digital assets, if any, are permitted? If the position is zero exposure, this should be stated explicitly. If operational use only, the permitted asset types (typically fiat-backed stablecoins only), the maximum holding period, and the maximum holding amount should be specified.
• Concentration limits: for any permitted holdings, a maximum percentage of total corporate cash that may be held in digital assets at any time.
• Custodian requirements: any digital assets held should be in custody with a regulated, ring-fenced, and independently audited custodian. The policy should specify minimum custodian standards and require board approval for any custodian change.
• Board approval process: any decision to initiate or increase digital asset holdings should require explicit board approval, not CFO or CEO discretion. This protects the CFO as well as the company.
• Disclosure policy: how and when will digital asset holdings be disclosed to shareholders, in regulatory filings, and in management accounts? Consistency of disclosure is important for investor relations.

The Regulatory Environment in April 2024

The UK regulatory environment for cryptoassets is in a period of active development. As of April 2024, UK cryptoasset businesses must be registered with the FCA under the Money Laundering Regulations 2017 (MLR 2017) for anti-money laundering purposes. This registration requirement applies to businesses carrying on cryptoasset activities in the UK: exchange services, custody, and related services. It is a registration, not an authorisation, and carries lighter obligations than a full FCA authorisation.

The forthcoming cryptoasset authorisation regime under FSMA 2023 will introduce full FCA authorisation requirements for a broader range of cryptoasset activities, with the gateway expected to open in 2026. Businesses that currently rely on MLR registration for their cryptoasset activities will need to reassess whether they require FCA authorisation under the new regime.

Holding cryptoassets on the corporate balance sheet for treasury purposes does not currently require FCA authorisation or registration. However, if the corporate is using cryptoassets in a way that constitutes provision of financial services — for example, facilitating crypto payments for customers as part of its business model — then the regulatory analysis is more complex and specific advice is required.

Board Governance Required

Any treasury decision involving digital assets must be subject to more rigorous board governance than equivalent decisions about conventional treasury instruments, for three reasons. First, the risk profile is genuinely different: the price volatility of major cryptoassets is materially higher than that of conventional treasury instruments. Second, the accounting treatment is unusual and requires board-level understanding to govern appropriately. Third, the reputational and stakeholder implications of crypto treasury holdings are material, particularly for businesses with institutional investors who may have policy restrictions on exposure to crypto assets.

The minimum governance requirements are: board approval of the treasury policy including the digital asset position; an investment mandate that specifies permitted holdings, concentration limits, and custodian requirements; quarterly reporting of digital asset holdings to the board, including current carrying value, market value, and any impairment charges; and an annual review of the policy by the audit committee, with input from the external auditor on accounting treatment.

For businesses that receive crypto as payment from customers — a common situation for crypto-native businesses, NFT platforms, and certain DeFi-adjacent services — the governance requirements should also include a clear policy on conversion frequency: how quickly is crypto received as payment converted to fiat? The longer the conversion window, the greater the price risk accumulating on the balance sheet. Most well-governed businesses in this category convert to fiat daily or at minimum weekly.

Key Takeaways

• The question of digital assets in corporate treasury requires a considered CFO position. The three positions are: zero exposure (the majority, and a defensible choice); operational use only (stablecoins for payment settlement, not investment); and strategic allocation (1 to 5% in BTC/ETH, a minority position most appropriate for crypto-native businesses).
• The IFRS accounting treatment under IAS 38 is asymmetric and creates P&L risk: price declines generate mandatory impairment charges, price recoveries cannot be reversed, and mark-to-market gains are invisible. This is the primary accounting argument against corporate crypto holdings.
• Counterparty risk at crypto exchanges and custodians is not equivalent to regulated bank risk. The failures of FTX and Celsius are material data points that must be considered in any custodian decision.
• A corporate treasury policy must address digital assets explicitly, even if the position is zero exposure. A policy that is silent implies no governance decision has been made.
• As of April 2024, UK cryptoasset businesses require MLR 2017 FCA registration. The forthcoming full FCA authorisation regime under FSMA 2023 is expected to open in 2026. Holding crypto for treasury purposes does not currently require registration, but using it in payment services may.
• Board governance of any digital asset position must include: board-approved treasury policy, investment mandate, concentration limits, custodian requirements, quarterly reporting, and annual audit committee review.
• The strategic allocation argument is not inherently irrational, but it requires honest answers to: what is the investment mandate, who approved it, and how will the board respond to a 40% impairment charge in the next downturn? For most non-crypto businesses, the answer makes zero exposure the right choice.