4 obstacles when adding crypto to your small business balance sheet
Posted by : Eric DragtAs a tech-specialised PR and content marketing agency, our interest in technology is probably way above average. And so is our curiosity towards blockchain and crypto. We won our first pitch for an international crypto platform in 2014. That success was followed by other clients and projects, including Coingarden, where blockchain and cryptocurrencies played a key role.
To satisfy our curiosity, in March 2020 we started an experiment. We wanted to find how a small organisation could add crypto to its balance sheet. My assumption here is that the small business wishes to do it themselves and not use over-the-counter (OTC) providers that are commonly used by institutional or large investors.
Questions ahead of the experiment: Is it as easy as opening a bank account? Are there any surprises for Dutch companies in particular?
This blog describes our experiences and sets out the obstacles that we encountered. Read on to find out about four things that you need to consider if you want to buy and hold cryptocurrencies as assets on your company’s balance sheet.
Disclaimer: this text is not intended as financial advice, nor is it my intention to encourage other companies to invest in cryptocurrencies.
Tesla and the like are already doing it
Tesla, Square and MicroStrategy are perhaps the most famous organisations to include crypto on their balance sheets. These names are examples of the growing group of publicly traded companies that have chosen to buy and hold Bitcoin. Large organisations like these are required to maintain cash reserves and use cryptocurrencies to hedge against inflation.
Donating to charity and making dreams come true
As I mentioned above, it all began out of curiosity. We wanted to find out for ourselves how easy (or difficult) it is for small businesses to get into the crypto market. To boost our motivation, I established three goals for what we would do if the cryptos on our balance sheet accrued in value:
- Donate to charity and/or invest in sustainable projects
- Make our colleagues’ dreams come true
Another upside to running this experiment – but definitely not an important reason – is that it helped avoid paying negative interest and/or the cost of additional bank accounts (to avoid being charged negative interest).
First things first: talk to your accountant
Cryptocurrencies are relatively new, and there is a fair chance that your accountant may not have dealt with crypto professionally. To make sure that our accountants could in fact help us, I discussed the plan with them first. My most important questions were:
- Is this possible/legal for Dutch companies?
- How are cryptos treated for tax purposes, and what tax is levied on them?
- How should we manage and administer the crypto transactions and holding so it complies with local bookkeeping rules?
Our accountants gave us their full support. But based on talking to other entrepreneurs about this, we might have been lucky with the tech-savviness of our accountants. If your accountant is unable to help you properly, find a specialist who knows about cryptos and has worked with them before.
Obstacle #1: It is impossible to open a business account on a Dutch crypto platform
The next step in the process was our on-ramp. We needed to find a crypto platform where we could exchange euros into crypto (in our case: Bitcoin). Of course, we had three requirements for the platform of choice:
- A user-friendly interface
- A clear transaction overview to serve as the basis for the financial/accounting reporting
- The option to use the iDEAL payment system as a fast and cheap way of depositing and withdrawing funds
As I already had a number of personal accounts on Dutch crypto platforms, I started by trying to open a business account there. Most of these providers’ websites offer little information, if any at all, about business accounts. Multiple attempts to deposit funds from our company’s bank account using iDEAL transfers failed. The transactions bounced, without any explanation. I reached out to the customer support departments to find out why this kept happening: several Dutch providers informed me that ‘it is not permitted to link a company bank account.’
“It is [currently] not permitted to link a company bank account to a Dutch crypto platform”
AMDAX is an example of another type of provider operating on the Dutch market. In its own words, it targets ‘serious crypto investors’. In practical terms, this means that the minimum deposit is €25,000, which will presumably pose an obstacle for some of small businesses (1-50 workers).
Obstacle #2: Opening a business account with an international crypto platform is possible, but the application process takes a long time
With the rules for Dutch providers making it impossible to open a business crypto account, I continued our search Internationally. However, the websites of large global providers are also short on information about the possibilities for companies that want to buy and hold cryptocurrencies.
I signed up with a number of these International platforms. As soon as I started filling out the first batch of company details, I realised that it might take weeks to hear back about my application. This is obviously considerably longer than opening a company bank account, which generally takes only a few business days.
“I soon realised that the application process could take weeks”
Obstacle #3: Opaque processes and poor communication by international providers
Besides the amount of time required for all the separate stages of the application, another curious finding was that the processes were even unclear to the platforms’ own staff. As a result, the quality of the communication was poor, and response times ranged from days to weeks.
This might be symptomatic of the current immaturity of the crypto market, combined with the popularity of cryptos and the resulting pressure on the providers’ customer service teams. I am confident that the situation will improve over time. My advice to companies that want to sign up with an International crypto platform is to be patient.
Obstacle #4: Submitting large amounts of paperwork, in English
Something else that I noticed during the application process was how much company paperwork I was asked to submit. Listed below are some of the documents, and presumably, not all small businesses will necessarily have them (from the Chamber of Commerce or a civil-law notary):
- Ownership Structure
- Register of Directors
- Letter of Authorisation
- Register of Shareholders
All this paperwork had to be submitted in English, which was not an issue with the documents listed above. However, the notarial articles of association on incorporation were also required in English. As a result, we had to commission a certified translator to translate the deed of incorporation.
So, business owners, be sure to allow extra time and costs for a certified translation – which can be significant, given how long and extensive these types of documents usually are.
“We needed to commission a certified translator to translate our deed of incorporation”
More than six months down the road we have finally added cryptos to our balance sheet
It took us 7 months – from the first attempt to apply for a business account with a Dutch crypto platform until we were finally accepted by an International platform. The process was a difficult one. And it revealed that the crypto market is still in its infancy. I expect that most of the obstacles that we encountered will be largely resolved within the next few years.
Can small businesses play a part in the adoption of cryptos?
According to Statistics Netherlands, in Q3 2021 the Netherlands boasted almost 2 million small businesses, i.e. organisations with up to 50 workers. While that covers numerous freelancers, it also includes companies with substantial turnover and profit.
Imagine that every small business in the Netherlands has €1,000 in cryptos on its balance sheet; the Dutch small business market would then hold €1 billion in cryptos. Then imagine that this was not limited to small businesses in the Netherlands alone, but extended to other countries with a much higher GDP!
Of course, this is a simplified and hypothetical calculation. However, it seems evident that an influx of so many small business users will have a positive impact on the adoption of cryptos worldwide and could help to lower the volatility of cryptocurrencies. High volumes of small businesses getting into the crypto space would also push up demand for digital currencies, which usually means a price movement in the same upward direction.
Whether or not small businesses will venture onto the crypto market in large numbers, I don’t know. It will depend in part on how easy it will become to make this step. Will crypto platform providers be able to eliminate the obstacles? And what effect will laws and regulations have on facilitating or obstructing entry onto the crypto market?