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Bitcoin Treasury Management: A Guide for Finance Teams

This article is written by Fortris Treasury teams across the world are facing the same challenge: how to manage digital assets such as Bitcoin alongside traditional government-issued currencies and other financial instruments. The challenge becomes more complex when Bitcoin is used in day-to-day business operations as well as an investment asset. However, with a good understanding of the foundations of Bitcoin treasury management, the perceived barriers to adding Bitcoin to the balance sheet can seem much less daunting. This article will unpack exactly what is involved for finance teams in the day-to-day management of Bitcoin, from the underlying technology to risk management considerations and best practice. What is Bitcoin treasury management? In a traditional finance (TradFi) environment, treasury management is a multi-faceted discipline that can mean different things to different companies. Fundamentally, a corporate treasurer is responsible for maintaining the cash reserves required for the smooth running of the business. They may also be tasked with managing funding and investment activities, and – depending on the size of the organization – carrying out day-to-day finance operations. Treasury management as an umbrella term can involve multiple roles beyond that of the treasurer, from the CFO to management accountants, internal audit teams and compliance. Bitcoin treasury management involves all these core functions, but with the added dimension of being underpinned by blockchain technology. There are also different accounting and tax requirements for Bitcoin and other digital assets. Differences between fiat treasury management and Bitcoin Bitcoin is a blockchain-based digital asset and as such, it has characteristics that make it distinct from fiat (government-issued currencies such as USD), and other financial instruments such as stocks and bonds. A blockchain is a completely decentralized network that is secured by cryptographic functions. Bitcoin transactions are created, executed, and confirmed by a network of computers called nodes, and all transactions are recorded in the publicly available ledger of the Bitcoin blockchain. Bitcoin transactions are validated by a network of computers, instead of a central authority like a bank. As a result, Bitcoin is a digital currency that cannot be controlled or manipulated by any central authority. This has both benefits and risks, as we shall see. Benefits of Bitcoin in treasury management 1. Transparency. Although it may seem paradoxical, blockchain-based systems like Bitcoin are designed to protect the privacy of individual users while at the same creating a public record of every single “on-chain” transaction. This built-in transparency makes it easier for audit and compliance teams to do their jobs. 2. Less counterparty risk. Removing the reliance on third parties such as banks minimizes exposure to counterparty risk. The dramatic collapse of Silicon Valley Bank in early 2023 was a stark reminder that businesses cannot be complacent about the risk of so-called black swan events. Even if deposits are eventually restored thanks to insurance or government intervention, companies can face a liquidity crisis in the short to medium-term. 3. A truly borderless network. Treasury teams within large multinationals face a multitude of challenges when it comes to cross-border payments. Settlement can be delayed by factors such as FX market cut-off times, currency controls at national level and hefty fees via the correspondent banking network. Bitcoin operates without borders or cut-off times, making universal T+0 settlements a reality. Challenges around Bitcoin for treasury teams Some of the challenges for treasury teams when it comes to operating with Bitcoin are the same as dealing with fiat currency. We will cover issues such as cybersecurity and liquidity management in more detail below. On top of this, there is a new set of metrics when it comes to reporting and analysis. These include: It is important to understand the extra metadata that a Bitcoin transaction generates and make provisions to record this accurately and consistently. How to manage a Bitcoin treasury To take full advantage of the inherent transparency of the Bitcoin network, and to ensure that there is no single point of failure when it comes to controlling funds, an organization needs to have a robust governance structure when it comes to executing and approving payments and generating reports. User roles and governance Ideally, the governance structure of a Bitcoin treasury system should map to the same access control measures that exist for the fiat part of the business (assuming that the business is not crypto-native). This allows for measures such as: Cash flow analysis Having a clear overview of the inflow and outflow of funds is essential for cashflow forecasting in fiat treasury management. This is also the case in Bitcoin. Accurate cash flow analysis relies on data being up-to-date and without the lags caused by manually updating spreadsheets. This is even more the case with Bitcoin, when tracking the cost basis of a discrete unit of Bitcoin (technically referred to as a UTXO) allows a treasurer to decide when to hold it and when to execute a realized gain or loss. There are two key functions that any Bitcoin treasury management approach must have to allow this to happen: The need for these tools will be determined by the volumes of payments coming into and out of the business. If this is likely to change over time, such tools will allow the business to scale its processes accordingly. Bulk payments This is a consideration for businesses looking to make repeat payments of the same amount each month. The most typical example here is Bitcoin payroll, for companies that wish to pay regular employees all or some of their salary in Bitcoin, either as a value-added incentive or as a streamlined way of operating geographically distributed teams. Having a bulk approvals mechanism will significantly speed up payment flows of this kind. Accounting and tax A comprehensive review of accounting considerations is beyond the scope this article. However, detailed Bitcoin bookkeeping through subledgers provides a solid basis for accounting workflows. Financial reporting Beyond accounting and tax, robust financial reporting can support business intelligence research (for example, an analysis of Bitcoin mining fees over time) as well as fulfilling internal and external audit requirements. TradFi enterprise resource planners (ERPs) such as NetSuite…