CFOs need to separate currency from technology to take advantage of crypto: Gartner

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Brief information about diving:

  • CFOs who want to take advantage of the opportunities provided by cryptocurrencies must separate the value of the coins themselves or tokens from the value of their core technologies, said Aviva Litan, vice president and senior analyst at Gartner, said Monday in an interview with Gartner. Gartner CFO and Finance Executive Conference.
  • Litan likened current events in the cryptocurrency industry to the early days of the boom, pointing out that significant failures in the nascent years of the Internet have not stopped its global spread. Therefore, CFOs should be careful not to view fluctuations in the value of cryptocurrencies as an indicator of the success of future commercial applications of virtual currencies.
  • “It’s normal to have this reaction and you can’t confuse the price of the coin, the speculative aspect, with the value of technology,” Litan said.

Diving Insight:

Today’s CFOs need to look at virtual currencies and core technologies as potential building blocks as Web3 begins to take shape.

“Honestly, you don’t have to confuse the value of a coin or tokens with the value of technology,” Litan said. “Blockchain provides many unique features. Cryptocurrency is the internet money we didn’t have in Web1. NFTs give consumers ownership of their assets. These are the main building blocks for Web3 and they are here to stay. ”

CFOs need to consider potential virtual currency applications in three main areas, including value storage, potential hedging against inflation, as a payment instrument and – perhaps the most risky, Litan warned – for investment purposes as DeFi begins to attract more interest.

Consideration of these areas for CFOs comes not only when a growing number of users interact with cryptocurrencies, but also when their board members and corporate partners begin to pay more attention to these currencies and their future use. Data released by the US Federal Reserve in May from a 2021 survey shows that 11% of adults in the US already own cryptocurrencies, with 3% of adults using cryptocurrencies for purchases or money transfers. In particular, 13% of these transactional users do not have bank accounts.

A recent survey by Gartner’s board of directors found that 15% of respondents said their organizations either currently own or plan to hold or conduct bitcoin transactions over the next two years.

Meanwhile, institutional trading has also begun to dominate cryptocurrency markets. Litan pointed out that Barron’s data for 2021 shows that transactions of more than $ 1 million from institutions represent a dominant position in the market over professional investors and retail investors.

Therefore, Gartner estimates that 20% of large enterprises will use digital currencies either for transactions, stored value or investment by 2024, something that could have a strong impact on current financial networks and business models.

“There is no doubt that the blockchain peer-to-peer infrastructure … is much more efficient and reliable,” Litan said. “It’s peer-to-peer, it’s consistent, and putting money through these networks eliminates middlemen and allows for a much more efficient and positive user experience.”

The notorious volatility of bitcoin remains one of the main obstacles for CFOs and board members reviewing the technology, with Litan noting that bitcoin has fallen 32% since the beginning of the year to the end of May. Recent Gartner figures show that 84% of CFOs still cite volatility as the main reason for staying away from cryptocurrencies – particularly bitcoin – while 39% of CFOs say the risk aversion to boarding is more their big concern when it comes to holding bitcoins. A survey of Gartner’s board of directors also found that 85% of boards said their organizations would never hold or conduct transactions with bitcoin or other cryptocurrencies.

The data also shows that bitcoin is strongly linked to the NASDAQ, Litan said at the conference, which shows that the virtual currency has not proved to be quite a hedge of inflation, as it was originally intended to be.

While staying away from cryptocurrencies like bitcoin living in public blockchains may be a better game for CFOs right now, adopting newer technologies like stable coins or looking more closely at the CBDC may offer more promise.

Stable coins, which, unlike bitcoin or Ethereum, are pegged to fiat currencies or more stable commodities such as gold and precious metals, could find significant use by retailers and those in payments who typically seek fiat stability when finalizing transactions. . Meanwhile, CBDC currencies can only be issued by central banks.

According to the Atlantic Council, nine countries are currently working with the CBDC, while many in the cryptocurrency industry are closely following China, whose CBDC is still a pilot. Central Bank of China officials noted in October 2021 that there are currently 261 million digital portfolios in the country, with transactions using such portfolios reaching more than $ 13.7 billion.

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