Crypto is no longer just a trend; it’s an integral part of many corporate treasuries, offering opportunities for growth and innovation. With any emerging technology, adopting crypto brings its own set of challenges. For finance teams, ensuring proper tracking, compliance, and operational efficiency is crucial.
Many adopting these strategies are public companies – the scrutiny and expectations are real. If you're managing crypto for your company, here are seven key considerations to keep in mind when building a sustainable and compliant crypto treasury strategy.
Digital assets are often spread across multiple platforms - exchanges, OTC desks, DeFi protocols, and custodial wallets - each with different data formats and reporting timelines. This diversity makes data accuracy a top priority. Relying on a single source (like just your exchange account or custodial wallet) leaves room for potential gaps and discrepancies in data. What does this mean? Controls are needed to mitigate these risks.
By leveraging automated systems that aggregate data from multiple sources, you can ensure that every transaction is accurately verified. Systems like Cryptio aggregate data from these platforms, normalizing it to provide a unified, verified view of all transactions. This enables your finance team to have a comprehensive, accurate picture of your assets and movements - a data-lake, whether they’re on-chain or off-chain.
Independent Data Reconciliation: Comprehensive data ingestion from all sources where you transact and hold crypto is the first critical step. However, simply collecting data isn't enough to ensure completeness. There's always the risk that something might be overlooked. Independent reconciliations are essential to verify that all transactions match the balances recorded on the blockchain or exchange. Using an automated reconciliation tool like Cryptio is crucial to streamline this process and eliminate the need for tedious, manual checks.
Accurately tracking the cost basis, the original acquisition price of an asset, is essential in the crypto world. This is especially true when dealing with trades where fees and the complexity of multi-platform transactions can complicate the process. Maintaining consistency across platforms is key to calculating capital gains and ensuring tax compliance.
It’s crucial to implement a lot-level tracking system that assigns cost to each asset individually. This becomes particularly important when managing large transactions, such as a 5000 BTC purchase. Often, these large trades are broken down into smaller child trades, executed over a period of time, using strategies like TWAP (Time-Weighted Average Price).
Why track child trade? It's vital for:
In the crypto world, wallet hygiene refers to the practice of properly managing and securing your wallets, which hold the company’s assets. You likely have separate wallets for different functions, such as operational funds, long-term treasury reserves, and trading assets. It’s crucial that these wallets are clearly categorized, secure, and well-maintained to ensure transparency and control over your company’s assets.
Internal transfers, such as moving crypto from your exchange wallet to a cold storage custodial wallet or from one exchange to another, must be tracked properly. These transactions should not be recorded as profits or losses, but instead as internal movements where the cost is transferred. This is one of the more complicated issues our industry faces.
Companies maintaining a strategic reserve often purchase digital assets in uneven quantities, such as 3,241 BTC followed by 2,224 BTC. To maintain clarity and streamline tracking, companies often prefer a structured wallet approach, such as allocating 2,100 BTC per wallet. This clear wallet structure provides better visibility into their holdings, but it also requires careful management of internal transfers and cost basis tracking to get there.
Audit readiness is critical when managing crypto assets. Auditors will expect you to provide a clear, well-documented trail for every transaction, from purchases and sales to OTC trades and internal transfers. In a world where crypto activity can be complex, auditors will look for evidence that the data used for your financial reporting is complete, accurate, and compliant with accounting standards.
Maintain detailed records of every transaction, including:
Using an automated solution like Cryptio allows you to store and maintain a comprehensive, auditable trail for every transaction, from exchange trades to on-chain wallet movements. This makes it easier to compile the necessary documentation for both internal audits and external regulatory reviews, ensuring you stay compliant with evolving financial reporting standards.
When it comes to valuing crypto for financial reporting, it’s essential to track each asset at cost, at the unit lot level. Fair Market Value (FMV) is a current requirement from the FASB - market each lot to current market prices, at a minimum of each reporting period. However, with potential fluctuations of the crypto markets, most companies like to see updates more frequently.
A principal market is the market (exchange) with the highest volume and level of activity for a particular asset. Think Coinbase or Kraken vs CoinMarketCap, which provides a global volume-weighted average price. A principal market provides the most accurate and transparent valuation. This ensures that your financial reports reflect the true market value of your holdings at any given time.
Tracking assets by their principal market is important for proper valuation and avoiding errors in pricing that could mislead stakeholders. Cryptio allows you to track each asset by its principal market, so you can be confident that your valuations are up-to-date and consistent with the most active, reliable market prices available.
As your crypto strategy matures, you might consider expanding into more complex products such as staking, lending, and derivatives. These products can provide high returns or strategic hedges, but come with additional complexities in terms of income recognition, market-to-market valuations, and collateral tracking.
For example, staking rewards may need to be recognized as income once earned, and lending activities may involve tracking interest payments, collateral, and any risk associated with lending crypto. Derivatives, such as futures or options, require revaluation based on current market prices, and margin positions also need to be considered.
By using a platform like Cryptio, you can manage these advanced crypto products seamlessly, ensuring that rewards, interest income, loans & collateral, and derivative positions are tracked and reported accurately. In turn, your financial statements remain compliant and reflect the true value of your assets.
As your crypto portfolio expands, managing all transactions manually, like in Excel, becomes impractical. Tracking each trade and wallet transfer by hand is prone to errors and inefficiencies. The best way to ensure accuracy and consistency across your portfolio is to automate as much of the process as possible.
Automation through specialized digital asset platforms allows for seamless data integration across exchanges, wallets, and custodians, ensuring that all transactions are captured and classified correctly. A platform like Cryptio automatically pulls data from all your sources (exchanges, OTC desks, wallets), categorizes & labels transactions, and automates reporting, all in real-time. All data is archived to help future-proof your day-to-day operations. By reducing manual errors, these tools save time, increase accuracy, and allow your finance team to focus on higher-value tasks.
Building a comprehensive crypto treasury strategy requires a thoughtful approach. From data reconciliation and cost basis tracking to wallet management and audit preparation, each piece of your crypto operations must work together to ensure accuracy, compliance, and operational efficiency. As your digital asset strategy grows, it’s essential to adopt the right tools to automate key processes, minimize errors, and ensure you remain compliant with GAAP (or IFRS, if applicable).
As the digital asset space continues to evolve, having the right infrastructure in place to manage your company’s crypto operations ensures that you can scale responsibly, mitigate risks, and stay ahead of the regulatory curve.