12/21/2020

What are the pros and cons of investing in crypto for businesses?

IMPORTANT NOTICE: This article does not constitute financial advice and is for informational purposes only. Businesses should be sure to do their own research before opening a cryptocurrency exchange account.

In the current environment of ultra-low interest rates, businesses are beginning to look outside the traditional banking system for alternative ways to store their assets. As a result, investing in crypto for business is becoming a popular way to grow a company's wealth, diversify its asset base, and earn strong passive income. 

Crypto exchanges and decentralized finance (DeFi) protocols have caught on to this trend, and many now offer competitive annual percentage yields (APYs) on cryptocurrency business accounts. These allow a crypto investing business to HODL (“Hold On for Dear Life”, in crypto lingo) a variety of crypto coins and tokens including stablecoins: cryptocurrencies pegged to fiat currencies, such as USD Coin (USDC) and USD Tether (USDT), which are pegged to the US dollar. 

These corporate crypto accounts offer APYs so far ahead of those available from traditional business account providers, that it’s no wonder companies are increasingly finding this option attractive. For example, YIELD App offers a high yield business account that delivers APYs of up to 20% - 40 times the APY offered by the highest yielding traditional business savings account in the US, for example, which currently pays 0.5%.

For a business owner, such yields may sound like a dream come true. But, as with any financial decision, it’s important to conduct thorough research and weigh up the pros and cons before opening a crypto business account. In this blog, we will take a look at the key advantages and disadvantages of a cryptocurrency account for business owners.

READ: What are the best high interest business cryptocurrency accounts?

Pros of a crypto business account

Potential for high returns

A key attraction of investing in cryptocurrencies is the potential for huge gains during boom markets. For example, the price of Ethereum has risen 672.5% in the past year to July 25, 2021 (according to CoinGecko). HODLing a cryptocurrency for relatively long time periods (a year or more) can help businesses take advantage of this while smoothing out the inherent volatility, as cryptocurrency prices can fluctuate wildly in the shorter term.  


Ethereum price over one year

Source: https://www.coingecko.com/ 


Passive income

The attractive APYs available from DeFi (as already mentioned above) blow anything offered by a traditional business savings account out of the water. As such, a crypto business account could be a great way for companies to store their assets and gain attractive passive income. 

Inflation protection

In June, the US reported its inflation figure had jumped to 5.4% year-on-year, while prices have also been rising at a faster pace in other parts of the world as a result of the economic recovery from the coronavirus. This environment is particularly difficult for those looking to save and preserve their wealth, as traditional savings rates don’t even come close to beating inflation. DeFi can come to the rescue with APYs that are often 10% or above, comfortably beating inflation rates across the developed world.


US inflation figures

Source: https://www.usinflationcalculator.com/ 

Transparency

Since cryptocurrency transactions happen on incorruptible blockchains, each transaction is recorded in a public ledger and cannot be changed once confirmed. Having a record of all transactions can help businesses be more transparent and keep track of their operations in simple digital format. 

Complete control

The nature of cryptocurrencies means that a user has complete control over their funds and transactions. No longer do you need to go through a bank or other intermediary to open an account and manage your money. This also means transactions are not confined to bank opening hours - they take place online and are therefore available 24/7 and are often instant. For a business, a high level of control can help reduce risks, while improving efficiency.

Stores of value

Finally, Bitcoin and other cryptocurrencies act as alternative, inflation-proof stores of value as they are in finite supply. At present, the supply of Bitcoin is around 19 million coins, with only 21 million ever able to be minted. This makes Bitcoin more scarce than gold. And just like gold, Bitcoin is hard to mine. However, it has the advantage of being digital, portable and censorship-resistant, making it a more attractive investment than gold for some.

Cons of a crypto business account

High volatility

As the Ethereum price chart above clearly shows, while cryptocurrency prices can rise to dizzying heights, the ride can be bumpy. For example, from an all-time-high of $4,757 on May 12, 2021, the price of ETH has dropped more than 50% to its current level of $2,156. This can be stressful for business owners and means caution must always be exercised when investing in cryptocurrencies. 

Ethereum price lows and highs


It can be difficult to get started

For business owners that don’t have a lot of experience with cryptocurrencies, getting started with a crypto business account can be a little daunting. There are a few key steps that need to be taken, including security steps such as Know Your Customer (KYC) verification and learning how the crypto and/or DeFi ecosystem works. However, our blog has a lot of information for those looking to set up a crypto business account.

READ: The complete guide to cryptocurrency accounts for small businesses

Security

For business owners, the security of their assets is paramount and in the world of cryptocurrency this can be a concern. Being a digital asset, cryptocurrencies can be susceptible to hacks and other exploits which can leave users significantly out of pocket. However, crypto business accounts usually employ several layers of security, for example by dividing funds between hot (online) and cold (offline) storage. For additional safety, there is also a nascent DeFi insurance market developing.

Evolving regulation

Last but not least, as cryptocurrencies become more mainstream, traditional financial regulators across the world are starting to pay attention. And this can mean only one thing - an increase in regulation. We have seen this most recently with the largest crypto exchange, Binance, which has been banned from all regulated activities in the UK by its financial watchdog (activity taking place in British Pounds) for not complying with its anti money laundering reporting standards.

READ: How to get cryptocurrency from DeFi into the real world

For business owners, regulation not only affects whether they can withdraw fiat, or “real world”, money from their cryptocurrency accounts (off-ramping), but could also have tax implications. The tax treatment of cryptocurrencies in different jurisdictions differs immensely and not all the rules are in place yet, so tax rates can be subject to significant change. 

The bottom line

Any business owner considering delving into cryptocurrencies must weigh these pros and cons to make an informed decision about whether cryptocurrency fits into their specific business strategy. If the answer is “yes”, then businesses must consider the various investment options available in cryptocurrencies and choose the most appropriate one. 

For businesses that want to mitigate some of the risks of investing in crypto while improving their return profile compared to traditional finance, a crypto investing account could be a fitting option. There are many crypto business accounts that offer market-leading APYs combined with a high level of security and customer service tailored to business customers. 

Are you interested in a business account that can return up to 20% APY? Sign up for a YIELD App account today!


Read More

Related Articles