Why do businesses choose cryptocurrencies?
The growth of the crypto market in 2021 contributed to the manifestation of interest in digital assets from different companies worldwide. If only those companies that sincerely believed in the formation of the crypto industry were investing in cryptocurrencies or introducing them into business processes, now it is more like a trend. However, one should not think that incompetent people sit in the management of large corporations, who invest and use cryptocurrencies just because everyone uses them. Let's take a step-by-step look at why traditional companies began to use cryptocurrencies as investment tools and business solutions. (1)
Advertising
In 2021, the crypto market's capitalization crossed the mark of $3 trillion, although by the end of 2020 it did not even reach $1 trillion. In this regard, cryptocurrencies were talked about everywhere: in the media, social networks, thematic forums and other resources. As practice shows, an increase in the value of cryptocurrencies and an increase in market capitalization directly affect the negotiability of digital assets. If some large company invested in cryptocurrencies, then this was actively discussed on the network. The company purchased free advertising for itself (except for investments in cryptocurrencies), and if considerable funds were invested, then the news immediately affected the price of the asset. This happened to Tesla in February 2021: the company invested $1.5 billion in bitcoin, which provoked an impulse growth of the main cryptocurrency. As Elon Musk said at the time, investing in bitcoin is a less stupid form of liquidity than just holding money. It turns out that now companies can invest or use cryptocurrencies in their operating activities, and this will make them free advertising, and quite viral, because such news is eagerly picked up by all crypto media.
Use of technology in operations
Businesses use cryptocurrencies because it helps streamline business processes. Here we are talking not only about digital assets but also about blockchain technology. As far as we know, it is not possible to change or delete information from the blockchain when it has already been entered there. In addition to the fact that this eliminates the malpractice of individuals of any company, it is even cheaper and more convenient. The main reason is that the crypto market is working 24/7 365 days a year. Any business could assign an authorised person to make transactions even on Saturdays or on holidays as well. You shouldn’t wait until 9 am Monday anymore.
Let's take the banking sector as an example. In banking, there is a process called reconciliation. Its essence lies in the coordination and reconciliation of data. According to studies, if blockchain technology is introduced into this process, the speed of data reconciliation will increase tenfold, the human factor will be eliminated, and annual operating costs can be reduced by $4 billion, with a total of $30 billion for American banks.
Businesses can also use cryptocurrencies to conduct cross-border transactions. Against the background of banking services, this method is distinguished by speed, minimal commissions and the ability to make a transaction at any time.
Many companies around the world accept cryptocurrencies as payment for their products or services. The reason for this is that this is not a bad investment tool that does not have a clear legal background, so accepting payments, for example in bitcoin, will be much more profitable for the company than in fiat currency. (2)
Inflation Protection
The collapse of the markets in March 2020 showed how quickly the crypto industry can recover. Just a couple of months after the collapse, the crypto market has already caught up, unlike traditional ones, which took much longer to recover. Cryptocurrencies have become a good tool for diversifying risks and hedging positions. This played an important role when the largest states turned on the printing presses and began to keep the economy afloat.
But this cannot go on forever. The sad consequences are already there: the US inflation rate for April 2021 is 4.2%. This is more than three times the previous figure, and the last time this was observed in 2008, during the crisis of mortgage lending. At a time when the traditional economy is under attack, cryptocurrencies can act as a good hedge against inflation. This, of course, will be used by large companies that would not want to lose their capital.
Continuation of the trend
There is a high probability that well-known companies and large investors will continue to invest in cryptocurrencies. If this happens, then companies can receive income from investments in cryptocurrency much more than from their core activities.
Now everything depends on how Bitcoin and other cryptocurrencies will be perceived by large investors. Of course, from the very beginning, 2021 showed the crypto market that institutional investors can invest in digital assets. Their examples were followed by many investors from traditional markets. But even the crypto market capitalization of $3 trillion is not an indicator compared to the traditional one. If this trend continues and new investors begin to enter the market, then accepting cryptocurrencies as payment or reinvesting company profits in digital assets will be the best solution for business.
We can conclude that investments in cryptocurrencies today are an integral part of the financial process. If earlier a small part of investors invested in cryptocurrencies, now this figure is steadily growing, as is the capitalization of the crypto market. However, many investors do not come to the market because they are afraid to get involved with cryptocurrencies: news is constantly published on the network about how someone or someone stole a cryptocurrency from someone. Where can you safely and legally manage cryptocurrencies?
We should also notice that investing in crypto is high risk activity due to its high volatility. Before investing in digital assets please, take advice from qualified financial advisors, and consultants.
