Treasury management is a crucial aspect of any financial management strategy as it plays a vital role in ensuring the financial stability, longevity and success of a project or organisation.
In the ever-changing and volatile crypto market, treasury management can prove to be a lifesaving strategy for crypto projects, enabling them to navigate through bear markets and maintain their financial stability. However, this solution is often neglected as many do not consider treasury management seriously.
Failure to properly manage treasury operations can lead to cash flow problems, exposure to foreign exchange risk, and decreased returns on investments, all of which can have significant negative impacts on a project’s financial health.
An efficient treasury management involves proactively managing a range of financial risks and liquidity, and involves activities such as cash management, foreign exchange management, debt management, and investment management. The proper management of these areas helps to mitigate potential financial risks, ensure sufficient cash flow, and maximise returns on investments.
Efficient management of cash flow
By closely monitoring cash inflows and outflows, projects can make informed decisions about when to spend and when to save. This helps to maintain a positive cash flow and provides a buffer against economic uncertainty. Moreover, maintaining sufficient cash reserves is critical for crypto projects, especially during uncertain economic times.
Treasury management helps to ensure that a project has adequate cash reserves to meet its financial obligations or any potential financial shocks, maintain stability, ensuring financial strategy meets business strategy. Sometimes also raising capital for the business if needed.
This helps to avoid running out of funds, which can have serious consequences for a project’s long-term success.
Risk management of foreign exchange
Foreign exchange risk is a significant challenge for crypto projects that operate in multiple countries or deal with customers or suppliers in different currencies. Treasury management can help mitigate this risk by hedging against currency fluctuations.
This helps to reduce the impact of currency fluctuations on the project’s financial performance and provide stability during times of economic uncertainty.
By implementing effective foreign exchange management strategies, crypto projects can ensure that they are protected against currency fluctuations and maintain their financial steadiness. This is particularly important during periods of economic uncertainty, when currency fluctuations can have a major impact on a project’s financial performance.
Projects that have invested in digital assets such as Bitcoin or Ethereum need to be able to effectively monitor and manage these investments to maximise their returns. Treasury management can help with this by providing tools and strategies for effectively monitoring the performance of digital asset investments and maximising yield.
This helps to minimise the risks associated with these investments and ensure that the project is maximising its returns. By utilising investment management strategies, crypto projects can ensure that they are making informed decisions about their investments and are able to maximise their returns in the long run.
Advantages of working with an experienced institution
Working with an experienced and licensed institution is crucial for crypto projects looking to manage their financial risks and maintain liquidity in uncertain times. Such institutions are reputable and reliable and provide assurance to projects that their financial needs are in good hands. They also help crypto projects navigate the bear market and maintain stability during economic turbulence.
When it comes to asset management, not all institutions are suitable for working with crypto projects. In order to manage their treasury effectively, crypto projects need fund managers who understand the complexities of the crypto ecosystem and can bridge the gap between traditional finance and digital assets.
The bridging of the gap also enables crypto projects to diversify into better risk free investments, especially since short-term US treasuries are currently yielding 4.9 per cent p.a.
Licensed institutions that specialise in digital assets offer a range of financial management solutions for crypto projects, including portfolio and asset management, bespoke yield generation strategies, cash flow planning, and fiat liquidity management solutions. These institutions can provide the expertise and experience necessary to minimise investment risks and maximise returns.
The process of working with an experienced institution typically starts with a deep dive into the company structure, business model, and financial drivers of the crypto project. This helps the institution to understand the client’s financial and operational requirements, as well as regulatory, tax, accounting, and legal needs.
Based on this information, the institution will propose a bespoke financial management strategy and asset allocation. The client can then leverage the institution’s solutions and network of institutional counterparties, including custodians, exchanges, market makers, and selected DeFi solutions. Crypto projects may also leverage on the institution’s balance sheet to lower their trade execution costs.
Regular reporting, analysis, and quarterly strategy reviews and adjustments ensure that the solution evolves with the client’s needs as the business grows. By working with a licensed institution, crypto projects can benefit from the expertise and experience of seasoned professionals, as well as the assurance of a strong partner who can grow with the business.
Consequences of neglecting treasury management
Neglecting treasury management can have serious consequences for crypto projects. Poor treasury management can result in increased financial risks, such as the risk of running out of cash, exposure to currency fluctuations, and unprofitable investments.
A project that does not maintain adequate cash reserves may face liquidity problems and difficulty meeting its financial obligations. Additionally, without effective investment management, a project may make poor investment decisions that result in low returns or significant losses.
The negative impact on the project’s reputation can also lead to difficulty attracting investment and retaining customers. It is essential for crypto projects to manage their finances effectively and stay on top of their treasury management to minimise these risks and ensure their success.
Engaging an experienced fund manager for treasury management can help make the process much easier. Not only will they bring the expertise and experience necessary to manage your finances effectively, but they can also provide peace of mind knowing that your financial needs are in good hands.
Additionally, an experienced fund manager can help you navigate the complex and ever-changing world of digital assets, making sure that you are making informed decisions about your investments. They can also provide access to a network of institutional counterparties, including custodians, exchanges, market makers, and selected DeFi solutions, giving you a comprehensive financial management solution.