A bitcoin treasury strategy is when a company decides to put some of that money into bitcoin (BTC) alongside or instead of traditional assets like cash, bonds, or money market funds.

Step 1: Make a plan

- Companies decide how much bitcoin to hold based on their risk tolerance, cash flow needs, and strategic goals. 

Step 2: Buy bitcoin

- To get bitcoin, companies might use spare cash, take out loans, or sell stock. 

Step 3: Keep it safe

- Given Bitcoin’s decentralized nature, secure storage is critical. Companies usually partner with qualified custodians to protect against fraud, theft, or hacking. 

Step 4: Financial products

- Bitcoin lets companies think outside the box. They can create new financial products tied to bitcoin’s value, such as convertible debt and yield-bearing instruments. 

Step 5: Ensure compliance

- Crypto rules are still a work in progress, so companies have to stay on top of regulations.

- Ideally, they should also use “mark-to-market” accounting, which means they update bitcoin’s value on their books regularly.

-  Price volatility can lead to unrealized gains or losses, impacting earnings and balance sheet stability.

1. Liquidity and flexibility

- Bitcoin’s global fungibility and 24/7 trading can provide more liquidity and flexibility.

- For companies with international operations, holding bitcoin can be used to simplify cross-border transactions.

2. Hedge against inflation

- Due to bitcoin’s fixed supply of 21 million coins, many argue that it can be used as a hedge against fiat currency devaluation, especially in regions with volatile economies. 

3. Diversification and investment potential

- By holding BTC, companies can diversify their treasury portfolios beyond low-yield bonds or cash equivalents.

- Bitcoin’s historical price growth (though not a guarantee of future performance) attracts companies seeking long-term capital appreciation. 

4. Attracting new investors

- Bitcoin treasuries allow companies to tap into institutional capital pools that would otherwise be unable to access direct crypto investments. 

- By offering BTC-linked financial instruments, such as convertible debt or equity tied to bitcoin’s value, companies can provide indirect crypto exposure, appealing to a wider range of traditional investors.

1. Regulatory and compliance risks

- Regulations and tax rules surrounding cryptocurrencies are constantly evolving. Treasury teams must stay ahead of compliance requirements across jurisdictions to avoid legal and tax pitfalls.

2. Accounting challenges

- Just like legal regulations, accounting rules for cryptocurrency are also developing. 

- While the Financial Accounting Standards Board (FASB) has issued some opinions outlining Generally Accepted Accounting Principles (GAAP) for cryptocurrency, rules will likely shift as the industry matures.

3. Security and custody

- Unlike money held in FDIC-insured bank accounts, Bitcoin requires robust security measures.

- Multi-signature wallets, cold storage, and institutional-grade custody solutions are critical for protecting assets. 

4. Liquidity and risk management

- Cryptocurrency is traded across many different exchanges, without a centralized marketplace like the New York Stock Exchange (NYSE).

-  That means there aren’t designated market makers to ensure liquidity. Bitcoin treasury holders should plan for market fluctuations, hedging strategies, and timely conversions if needed.

5. Governance and access controls

- Blockchain transactions are one-way and can’t be reversed, making the risk of fraud, including internal misconduct, potentially more costly. Leaders should establish clear policies to prevent fraud and unauthorized transactions.