Guest post by Charlie Fletcher, who is a freelance writer passionate about workplace equity, and whose published works cover sociology, politics, business, education, health, and more. You can find more of her writing on her Contently.
Financing is key to supporting a growing business. This isn’t just because it helps to finance immediate needs such as staff or equipment. It also plays a role in ensuring you have the resources to gradually build your company. Not to mention that your financial assets can attract investments and loans.
The Risks of Crypto Financing For Growing Businesses
Increasingly, growing businesses aren’t only utilizing traditional forms of financing. Cryptocurrency has become a valid and — in some instances — attractive option. Yet, it’s important to recognize that while crypto is seeing greater adoption in business, it also represents significant risks. If you’re considering utilizing this resource, you also need to establish ways to navigate the hazards associated with it.
We’re going to take a moment to explore the risks associated with crypto financing and how growing businesses can best mitigate these.
Assess the Risks
Risk is a reality of running a business. The important thing is that you must commit to responsible risk management practices. Just as you have procedures in place to take care of potential issues such as embezzlement and natural disaster, you need to recognize strategic risks that may be associated with investing in cryptocurrency. The first step of any solid risk management process is identification. The clear sense you have of the potential issues involved, the better able you are to make informed choices about your approach.
There are some general risks involved with the crypto space. For instance, this resource is decentralized in nature. This can be considered a benefit as crypto can be less influenced by the shifts in any single country’s economy. On the other hand, this can also be a risk in that there are few regulatory bodies involved, meaning there are few protections in the event of scams and other issues.
Another general risk of cryptocurrency is that the market is considered volatile. Values have frequently been influenced by the seemingly minor actions of external influencers. One of the most well-publicized of these has been Elon Musk causing the Bitcoin price to plummet by tweeting a meme.
However, it’s also important to understand and identify potential internal risks related to your crypto investments. For instance, could your crypto financing impact the reputation of your company? Does your crypto affect your company value for the purposes of borrowing money or gaining investments in the future? Can it negatively influence the immediate liquid assets available to your business in emergencies?
Diversify Your Investments
You may be able to mitigate some risks involved in financing your growing business through crypto with some general protective actions. One of the common approaches in enterprise is ensuring you’re not too reliant on a single type of resource. This can apply to almost any aspect, from the types of technology your start-up invests in to the professionals you bring on to staff your company. Similarly, diversification is a key risk mitigation practice when utilizing crypto financing.
This means choosing a selection of different types of crypto coins to invest in rather than simply heading for the most popular or well-publicized, like Bitcoin or Ethereum. One area you can diversify in is the industry the currencies are linked to. Instead of using currencies that are all associated with tech companies, you can choose a selection across different fields such as healthcare, finance, or entertainment ventures. This helps to protect your overall investment in case there are issues in a particular industry.
It’s also worth considering whether going all-in on crypto is a sensible approach for your growing company. Consider starting with a relatively minor amount of crypto financing combined with a range of other types of investment, such as stocks or real estate. This allows you to carefully monitor the markets and shift your focus to buying more crypto or investing elsewhere as the markets change. At the same time, this protects you from losing everything should your currencies fail.
Take a Competitive Approach
Crypto is not just a way for startups to strengthen their overall financial assets. It can also help serve other priorities in your company. One common area of focus for many emerging businesses is finding ways to compete with larger brands. Tactics such as utilizing guerilla marketing tactics and eye-catching merchandise can be effective tools here. However, it’s worth considering that you can apply crypto to individual projects intended to boost your brand profile. This also mitigates the risk of investment by ensuring your resources are focused on specific activities rather than supporting the entire company. Not to mention that being more competitive in and of itself reduces your wider risks.
One such project can be focused on capturing specific market demographics. Some consumers and investors are attracted to businesses investing in crypto. In some ways, this is because such actions reflect their values related to libertarianism or cutting-edge technology usage. By creating specific company projects that are supported by cryptocurrencies and even related to them, this can also act as a form of marketing that draws in a segment of your target demographic.
Another approach is utilizing crypto as another element of the customer journey. An increasing number of consumers want to be able to purchase goods and services with their cryptocurrencies. Enabling this option with some popular coins can help you be more competitive by adding levels of convenience other brands don’t. You can then maintain a certain amount of the coin in your wallets while liquidating another portion to reduce the risks involved with keeping the coin.
To make the most out of using crypto to finance your growing business, you need to understand how to mitigate the risks involved. Take the time to establish how the risks could affect your business so you can take the most appropriate measures. Wherever possible, diversify your investments, rather than relying on a single currency. Utilizing crypto to enhance your competitiveness can also help you grow your company while limiting the potential for widespread risks. As with any element of business risk, your key to navigating it is utilizing knowledge to make well-informed choices.
Charlie Fletcher is a freelance writer passionate about workplace equity, and whose published works cover sociology, politics, business, education, health, and more.
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