For CFOs, the business case for crypto still exists, but not without regulation

Like VCs who, despite the fanfare, held back their FTX investments, CFOs who were slow to incorporate crypto into their workflows may currently be feeling pretty good about their reluctance. But despite the hesitation, it seems like finance chiefs aren’t ready to entirely dismiss the business case for alternative payments quite yet. They just want greater transparency and regulation first.

“For several years at Gartner, [crypto] sentiment and appetite was much stronger. Twelve months ago, when things were less volatile, interest rates were lower, there was more risk-taking in venture capital flowing into the space, we had several Fortune 500 CEOs and their teams actively engaged in exploring and experimenting with the possibilities of digital assets and currencies,” Alex Bant, chief of research for finance at Gartner, told CFO Brew. While very few decided to incorporate it, many were curious, he said.

Much of the interest from corporate clients was due to the high-yield maximization of digital currencies, Bant told CFO Brew. The Fed (unintentionally) squashed that exploration due to rising interest rates, making more stable and traditional assets attractive, leading some to speculate that higher interest rates were responsible for kneecapping crypto.

We’re still here. Speaking at the Citi 2022 FinTech Conference earlier this month, Mastercard CFO Sachin Mehra said that the company’s view on crypto “hasn’t changed,” explaining that “if there’s demand for crypto, what we’ve been doing is enabling our capabilities” to allow for such.

“However, the No. 1 thing that CFOs and their teams are looking for in order to trust digital assets: It’s regulation.” Bant told CFO Brew. “And the second is the stability of the tokens or assets themselves.” And during the FinTech Conference call, Mehra alluded to similar sentiments in his recent comments post-FTX collapse, saying, “We also recognize that the crypto space is fraught with several risks, which our customers face.”

Matt Higginson, a partner at McKinsey who advises clients on crypto technologies, said that while he sees a reduced appetite to invest in crypto in the short term, the long-term interest in the technology for transactions such as cross-border payments or tokenizing carbon credits currently appears to be unchanged.

Higginson said the biggest work McKinsey does with clients is tokenization, mentioning that the cryptocurrency saga with FTX is actually a distraction. Bant also told CFO Brew that the interest in tokenization of things such as rewards programs or loyalty programs is independent of the crypto markets, as it doesn’t require regulation and is perceived to be safer.

FTX and chill. Crypto companies themselves have seen a flurry of short-lived CFO departures this year. OpenSea CFO Brian Roberts resigned in October after 11 months on the job and after the company filed for Chapter 11 bankruptcy. Crypto lender Voyager’s CFO Ashwin Prithipaul resigned in September with five months under his belt in the role. Other crypto CFOs—such as Jeremy Baumann, CFO at SwissBorg—have taken to Twitter to explain why their business will remain unaffected by the crypto ecosystem meltdown.

The collapses of both FTX and Luna were a real “confidence breaker,” Morten Christorp Nielsen, CFO and co-founder at digital-asset company Aryze, told CFO Brew. Nielsen said full stack developers have been emailing Aryze looking for a new job, and other crypto companies are scrambling to release statements that they aren’t on the path to failure and can provide third-party verification for their balances.

“Has the business case diminished? No.” Nielsen said, but predicted the market will be standing still for at least the next six to 12 months. The co-founder said that the space will naturally thin out, but the key for crypto companies is that they have enough runway to last them in a standstill market.

Not their first rodeo. Corporate CFOs outside of the crypto industry also will not be looking to get involved again anytime soon until the proper regulation is put in place, Bant told CFO Brew, saying it could be a “net positive” in the long run.

“CFOs have lived through too many market crashes to just jump right back in, and they’re gonna watch this very carefully, probably play out over the next several years,” Bant said, adding that many may be hoping one of their peers takes the first leap before them.—KT