Case Study: Should We Embrace Crypto?

The phone buzzed on the nightstand—once, twice, three times—waking Ankit Jain from what had been a restful sleep. Before he could reach the phone, three more texts came through. He knew who it would be: his boss, Thorsten Konig, the CEO of Ivory Tower, the world’s leading online education platform. In Sun Valley talking crypto. It’s time. Payments + investment. How fast can we do it? Pls call ASAP to discuss. Bring in Shira and Paul. Ankit sighed. Thorsten was a brilliant technologist who had started and sold DayTradz, one of the first online retail trading platforms, before he was even 30. Ivory Tower was his second, also hugely successful, venture—one that was disrupting higher education by offering high-quality college and graduate-school courses to students around the world. Some, such as the intro to economics class taught by a Nobel Prize winner donating his time, were extremely affordable, while others, such as classes on personal branding with Kris Jenner and on M&A with Carl Icahn, were obscenely expensive. The idea was to have the platform’s wealthiest users subsidize its poorest. The impact Ivory Tower had achieved in the five years since its launch—and in the 13 months since its IPO—was amazing. But sometimes being the CFO of a fast-moving company led by a “crazy genius” was exhausting. For months now Thorsten had been talking about integrating cryptocurrency into the business. He was a huge proponent of Bitcoin1 and had put about 5% of his own portfolio into it. Several weeks ago the CEO had asked Ankit to have his team look into accepting tuition payments and keeping some of Ivory Tower’s cash reserves in crypto. In media interviews, Thorsten had also started alluding to “our crypto future,” sparking speculation that he would build or buy a crypto trading platform.2 But Ankit knew that Thorsten was committed to Ivory Tower for at least the next few years; he just wanted to combine it with his new passion. To Thorsten, taking fees and making investments in Bitcoin were simple matters—akin to doing business in euros as well as dollars, which Ivory Tower already did. Bitcoin adoption could allow the U.S.-based company to further hedge itself against dollar inflation.3 Ankit knew that things were much more complicated. Although cryptocurrencies were gaining mainstream appeal, even established ones like Bitcoin were highly volatile, with value swings that made them look more like speculative stocks. Sure, it was possible to take payment in Bitcoin and then convert it to dollars, but the company had to figure out whether it made sense to build the internal capability needed or to hire a third-party vendor to handle transactions. And investing earnings in crypto was another thing entirely. Ankit’s head hurt just thinking about the financial-reporting challenges. Then there was his fiduciary responsibility as CFO: Did shareholders really want Ivory Tower to bet on crypto if doing so might risk the capital needed down the road for developing better technology and courses and expanding the company’s reach? Unfortunately, Thorsten rarely took no for an answer. So Ankit rolled out of bed and texted his teammates. “Morning. T asking about crypto again. Zoom at 8 to discuss? He’ll join at 8:30.” Within a minute, he’d received two thumbs up. By now everyone was used to Thorsten’s impromptu meetings. Ankit just hoped this one wouldn’t end with an edict. Evaluating the Options “I mean we can accept tuition payments in Bitcoin.” Paul Abebe, Ivory Tower’s controller, had jumped in immediately on the Zoom call. Everyone had been working from home since the start of the pandemic, and the company had decided it wouldn’t require anyone to return to its Manhattan headquarters. “It’s annoying—not as liquid as nondigital currencies, obviously. There would be IRS reporting and anti-money-laundering compliance issues to consider. But the question is: Why should we do it?” “Thorsten says it fits with our ethos: embracing the future, spearheading new technologies, shaking up the stodgy educational community,” Shira Peretz, Ankit’s deputy, said. “Edo loves the idea too.” She was referring to Edo Sanger, Ivory Tower’s CMO. “He thinks it will make for great press.” “And will that translate into more users and revenues?” Paul asked skeptically. “What percentage of our students even care about this?”4 “Well, our blockchain and crypto courses are actually some of our most popular, but Thorsten admits that at this point most people probably won’t pay in Bitcoin,”5 Ankit said. “He’s more interested in investing our excess cash in it. Thoughts?” “It’s a terrible idea,” Paul said. “Agree,” Shira said. “There’s no GAAP guidance on how to account for this stuff yet.6 But the AICPA says Bitcoin isn’t considered cash or a cash equivalent, inventory, or a financial instrument, so it needs to be treated like an intangible asset, which means that if its value falls, we have to mark it down on our balance sheet. But if it goes up, we report those gains only when we sell. So if we’re meaningfully invested, we could be taking big, random hits to our net income for no business-related reason. Communicating the company’s performance will get more complicated.” “But if Bitcoin goes up in the long run, could it give us gains that smooth out or boost profitability?” Ankit asked. “Our shareholders aren’t looking for perfect quarterly results. They want us to invest wisely to grow the company.” “I’m sorry, but an asset that goes from a valuation of $60K to $30K in one month cannot be considered a prudent investment,” Paul countered. “How do we know that Bitcoin will be worth as much next year as it is now? And will we use just Bitcoin or also Ether or any of the thousands of other cryptocurrencies?” “For now, Thorsten’s talking only about Bitcoin,” Ankit said. “It has the largest user base and longest history. And he’s convinced it will go up in value.” “If our shareholders want to bet on crypto, they can do it directly,” Paul said. “When we filed our S-1 for the IPO, we didn’t say anything about a Bitcoin treasury.” “Well, we’d disclose it, and investors could sell if they’re not on board,” Shira said. Then she shook her head. “But I agree that it’s too soon, too volatile. I vote for accepting Bitcoin payments—if it’s doable without too much compliance and IT complications. Investments, no.” “I’m a no and a no,” Paul said. Just then, Ankit saw that Thorsten was in the Zoom waiting room. “OK, guys, here comes T,” he said, letting the CEO in. “Hello, friends!” Thorsten said as his face popped up on-screen. “What a fabulous day to be talking about the future. Catch me up on our crypto plans.” Ankit took the lead. “We’ve evaluated our options, and while we appreciate the potential benefits of Bitcoin, we’re going to advise against—” “Aha! I knew you guys would say this. Your job is to worry about the spreadsheets. I understand. But that’s why I’m here: to help you see the big picture. Bitcoin is the future. There is no world in which it underperforms relative to major currencies over the next decade.7 We have so much cash in reserves. Why wouldn’t we put some of it into assets that produce high returns we could invest in the company? We could get appreciation up to 10 times what we’d otherwise see. We’ll help propel Bitcoin forward and democratize the movement of money, just as we’re democratizing education. We must do this!” Ankit could tell that Paul and Shira were deflated, if not surprised. This did seem like a fait accompli. What Thorsten wanted, Thorsten usually got. The Board’s Concerns After setting his team to work figuring out how to take crypto payments and spending a few hours modeling various levels of investment in Bitcoin, Ankit checked his email. Cindy Yu, the company’s newest director and the head of its audit committee, had sent a message asking him to call her. “Cindy, hi! I just saw your message. What’s up?” “Hi, Ankit. Thanks for getting back to me. I’m calling with some board concerns. Can we speak off the record?” “Of course.” “Thorsten has mentioned to several directors that he’s interested in making Bitcoin a bigger part of Ivory Tower’s business. At the same time, he’s personally—and not insignificantly—invested in Bitcoin. Some of us are worried that this at least has the appearance of a conflict of interest.” 8 “I see.” “More important, some of us have questions about the wisdom of taking our treasury into crypto. Obviously, I expect that we’ll discuss this at the board meeting next week, but I wanted to give you a heads-up. I suspect that Thorsten has asked you to present a plan to us. However, we want your candid opinion. He has his allies, of course. But as nonexecutive directors, we have to make decisions in the company’s best interest, and we expect the finance team to make recommendations based on the same criteria.” “Of course.” “I know Thorsten is a force of nature and doesn’t make it easy to disagree with him.9 But if you do, the board needs to hear it, and you will have our support.” Case Study Classroom Notes Bitcoin is the first cryptocurrency, created in 2009. Users on its network can send Bitcoins to one another without intermediaries such as banks. Transactions are facilitated by blockchain technology, which allows a computer database to securely track and verify transfers of ownership. Popular cryptocurrency trading platforms include Coinbase, Gemini, and Binance. Each currently has a trading volume in the billions of dollars. In the second quarter of 2021, U.S. inflation rates rose sharply, roughly doubling, while Bitcoin’s dollar value fell 41%. A 2020 survey by Gemini found that about 14% of the U.S. population owned cryptocurrency. What would make students more likely to pay in cryptocurrency? The U.S. Generally Accepted Accounting Principles and the Financial Accounting Standards Board do not offer guidance on the treatment of digital currencies. Companies must interpret how existing standards apply to them. What evidence does Thorsten have to back up this prediction? How can Ankit get him to envision a different future or the risks Bitcoin imposes? Is there a problem when corporate executives invest in the same assets that their companies do? What might taking a stance against his CEO mean for Ankit’s career at Ivory Tower and beyond? Pressure from the CEO At 7, Ankit was out for a jog when his phone rang: Thorsten. “Ankit. Hope I didn’t catch you at a bad time. I wanted to reconnect on crypto.” “Just on a run. No problem.” “Ah, keep running. I can talk as you go,” Thorsten said. “I want you to know that I understand your hesitancy. And we can take it slow. But I have a track record of knowing what’s next in business. First DayTradz, now Ivory Tower—both big successes, though many didn’t believe they could be. You can trust me again now. Bitcoin has outperformed the dollar since its inception, is gaining popularity with our user base, and in my opinion will be more efficient and secure than regular currencies. Other cutting-edge companies are already starting to jump in. Now is the time for us to as well. Our support will help the crypto movement. We’ll take power from large institutions and put it into the hands of the people. This fits perfectly with our mission.” Ankit wasn’t sure how to reply, but Thorsten didn’t press any further. “OK, continue your exercise, my friend. And tomorrow we’ll run toward the future together!” After the call, Ankit picked up his pace and tried unsuccessfully to zone out to his iPhone music. Was Thorsten right? If monetary exchange was going to move toward crypto, Ivory Tower should certainly get ahead of the shift. But what if governments clamped down on cryptocurrency? If Bitcoin lost all its value? The board members were right to ask hard questions. And Ankit wasn’t at all sure how to answer them. The Experts Respond: Should Ankit back Thorsten’s Bitcoin plans or not? Amrita Ahuja is the CFO of Square. Ankit should support the push into Bitcoin—as both an accepted form of payment and an investment on the balance sheet. At Square we believe there’s a high probability that the internet will have its own native cryptocurrency, and Bitcoin is the strongest contender. It’s the most secure and resilient, with a principled, decentralized, transparent, and consensus-based development model. We foresee a future in which companies won’t have to navigate fiat currencies and local rules and regulations that create complexity and high costs for consumer transactions across borders. Cost, time, and security inefficiencies will fall away, and companies that accept Bitcoin payments will be able to serve anyone in the world, including people who have historically been marginalized by financial systems or who distrust federal banks (as in Latin America and certain other regions). This fits perfectly with Ivory Tower’s mission of bringing quality higher education to underserved communities globally, and the company should get ahead of the game. Thorsten’s also right that having Bitcoin on the balance sheet will demonstrate to customers, employees (present and future), shareholders, and onlookers that it has “skin in the game” and will help make a more inclusive internet currency a reality. In addition, Bitcoin can provide attractive diversification and act as an inflation hedge. Square invested 5% of its cash and cash equivalents in Bitcoin. We believe that the long-term opportunity is worth any near-term volatility and that our investment will enable us to learn and help improve the system while increasing trust in it. To that end, Square has set up the Crypto Open Patent Alliance to increase access to cryptotechnology through a collaborative patent library; Square Crypto, an independent team solely focused on contributing to the Bitcoin open-source work; a $10 million Bitcoin clean-energy initiative to incentivize miners to use renewable sources; and a $5 million endowment to fund education about Bitcoin and promote its adoption. Ivory Tower could similarly be at the leading edge of network development, building good relationships with regulators to enable consumer protection and address bad actors while also fostering innovation and figuring out how to master custody, insurance, exchange, accounting, payroll, tax reporting, and compliance. Ankit, of course, needs to address all the concerns that his team and Cindy Yu have raised. But with Thorsten’s support and a clear strategy and execution plan, he can make the case that the company has the opportunity to be at the forefront of this rapidly emerging trend. This is the time for him to truly lead as CFO. Roxi Wen is the CFO of Invitae. The case against Ivory Tower’s moving to accept and hold Bitcoin is far stronger than the one for it. Ankit should oppose the plan—but only after having a frank conversation with Thorsten to outline the downsides and explore other ideas. Paul is right that cryptocurrency is too volatile to be of balance-sheet quality. If Ivory Tower wants an inflation hedge, many alternatives—gold and real estate, for example—are less risky. Moreover, managing Bitcoin transactions and custody will require the finance department to build entirely new capabilities, such as safe storage for Bitcoin keys, and it’s unclear that that would be a good use of staff time. And the regulatory environment is extremely uncertain; difficult disclosure rules or divestment requirements could crop up at any time. I also find it hard to believe people will want to pay tuition in Bitcoin. Most buyers of crypto want to hold it for capital appreciation and as an inflation hedge, just like Thorsten. Why would customers use their holdings to pay for courses, logging taxable capital gains now? Thorsten thinks Bitcoin will be more secure and efficient than currencies backed by governments. But that’s debatable, since fiat payments, particularly in developed countries, move securely and often more rapidly than Bitcoin blocks do. Sure, Bitcoin may someday trade as frequently and easily as dollars, euros, and yen. Ivory Tower might get useful marketing value from being ahead of the curve and solidifying its reputation as a forward-looking innovator. However, given the complexities surrounding Bitcoin, I think there are more-effective ways to gain competitive advantage. Ankit needs to artfully manage Thorsten. When you work with a smart, fast-moving leader who is full of ideas, you often feel your job is to constantly say no. But that’s not a productive relationship. Instead, you want to have candid strategic conversations. The two men should talk about what Thorsten really wants. Is it to embrace Bitcoin? Or to become part of the blockchain revolution? And if it’s the latter, is there another way to deploy the technology in the business? For example, could it be used to set up an open, distributed operating system where users could create their own classes? Could payment collection happen via blockchain even when customers pay in traditional currencies? These are much broader questions, and Thorsten’s answers might help Ankit find a way to honor the CEO’s wishes without doing exactly as he says. At my company my colleagues have lots of ideas about what to do with our significant cash reserves, but no matter how wild their suggestions are, I never just reject them. I sit down with people, ask what they’re trying to accomplish, and brainstorm how to achieve those goals even if it’s in ways different from what they’ve suggested. Ankit should do the same with Thorsten. Of course, the CEO could put his foot down and persuade the board to back him. Elon Musk was able to do that with Bitcoin investments at Tesla. But even then, Ankit could pitch a lower-risk experiment—perhaps creating a small, separate holding company to test Bitcoin in. The CFO has authority and credibility with Thorsten and the board. He shouldn’t be afraid to use it. HBR’s fictionalized case studies present problems faced by leaders in real companies and offer solutions from experts. This one is based on the HBS Case Study “Accounting for Bitcoin at Tesla” (case no. 121074-PDF-ENG ), by Charles C.Y. Wang and Siyu Zhang.

Case Study: Should We Embrace Crypto?

Partner Center